By Qaiser Nawab, Chairman BRISD
As the United States grapples with stagflation risks — sluggish growth coupled with persistent inflation — pragmatic trade engagement with China offers a practical buffer. Billionaire investor Ray Dalio has warned repeatedly in recent weeks that the US economy has entered a stagflationary period, driven by high fiscal deficits, sticky inflation, and external shocks including energy price volatility. In this environment, disrupting ties with the world’s leading manufacturing base risks amplifying domestic pressures rather than easing them.
Bilateral trade remains substantial despite tensions. In 2025, the US imported $308.4 billion in goods from China while exporting $106.3 billion, maintaining a deficit of $202.1 billion. These flows deliver lower prices for American consumers, critical inputs for manufacturers, and export markets for farmers — benefits that warrant careful protection amid current headwinds.
The Stagflation Challenge and Trade’s Stabilising Role
Dalio describes a toxic combination of slowing momentum and elevated inflation, worsened by policy uncertainties at the Federal Reserve. Supply-side constraints in such conditions can intensify price pressures while weakening growth. China’s role as a supplier of affordable consumer goods, electronics, machinery components, and intermediate products becomes especially valuable here. These imports help moderate costs and support household purchasing power at a time when real incomes are strained.
Past trade tensions demonstrated the costs of disruption. Studies of the 2018-19 tariffs showed that US importers and consumers bore much of the burden, with prices rising for items ranging from apparel and electronics to industrial parts. Recent analyses suggest tariffs can pass through to core goods prices at rates of 50-86%, adding to inflationary strain. In a stagflationary setting, such cost increases risk deeper slowdowns by squeezing margins and dampening demand.
American businesses, large and small, have built operations around these supply chains. Full reshoring or rapid friend-shoring demands enormous capital and time, often resulting in higher unit costs. With labour markets softening and productivity uneven, abrupt rewiring could worsen stagflationary pressures. Gradual diversification makes sense, but blanket restrictions threaten empty shelves, factory delays, and higher inflation — precisely the outcomes an anaemic economy can ill afford.
Agriculture further illustrates the stakes. China remains a vital buyer of US soybeans, pork, and other commodities. Disruptions have previously hurt farmers, requiring government support. In a period of fiscal strain, preserving these export outlets supports rural economies and eases budget pressures.
Shared Interests Beyond Rhetoric
The case for cooperation extends beyond immediate savings. Severe disruption between the two economies would generate global ripples — supply shocks, currency volatility, and eroded investor confidence — that could intensify America’s domestic challenges. Managed trade provides the predictability businesses need for investment.
Technology offers another domain. While security controls on sensitive areas are essential, broad isolation carries opportunity costs. US firms gain from market access and collaboration in non-strategic fields such as climate technologies and supply chain resilience. These efficiencies can support growth without compromising core interests.
From Pakistan’s perspective, stable Sino-US economic relations are reassuring. Great-power tensions distort global markets, raise commodity prices, and constrain development finance. Constructive engagement helps anchor worldwide growth, benefiting emerging economies facing their own inflationary and debt pressures.
Critics correctly highlight trade imbalances, intellectual property concerns, and strategic competition. These require serious diplomacy and targeted measures. Yet they need not justify wholesale separation. History shows that managed competition paired with dialogue on rules, access, and investment often yields better results than outright confrontation. The earlier Phase One agreement, though imperfect, proved that deals can deliver purchases even amid rivalry.
With US debt elevated and productivity growth uneven, trade policy should complement fiscal and monetary tools by enhancing supply-side flexibility. Selective cooperation — expanding access in non-sensitive sectors while addressing overcapacity multilaterally — serves American interests without naive concessions.
Pragmatism as Strategic Maturity
None of this suggests abandoning vigilance. The US retains strong leverage through its consumer market, innovation edge, and alliances. Smart policy uses these to negotiate improvements while avoiding self-inflicted damage. Gradual supply chain diversification is prudent; sudden rupture is not.
For ordinary Americans, the implications are concrete: prices at retail stores, jobs tied to global production, and farm incomes linked to exports. In stagflationary times, these everyday realities outweigh ideological battles. Dalio’s warnings highlight the need for balanced policy. Over-reliance on tariffs or isolation risks unintended consequences that harm growth and living standards.
A wiser approach combines firm defence of core interests with recognition that economic complementarity with China can cushion domestic pressures. This demonstrates the maturity required in a multipolar world. As policymakers weigh decisions, evidence from supply chains, consumer costs, and macroeconomic models suggests pragmatic cooperation remains one of the more effective tools against stagflation.
In an interconnected global economy, binary choices are rare. America’s real test lies in balancing competition with the cooperation needed to protect prosperity at home. History favours those who adapt to realities rather than deny them.
About the Author:
Qaiser Nawab is Chairman of the Belt and Road Initiative for Sustainable Development (BRISD), an international platform fostering cooperation and innovation across Asia, Africa, and Latin America. He can be reached at qaisernawab098@gmail.com
