The US-China Trade War: A Defining Economic Challenge
The trade war between the United States and China, initiated in 2018, represents one of the most significant developments in recent international economic relations. The dispute, which spanned multiple administrations and monetary policies, has reshaped global trade patterns, influenced political alliances, and created ripples across markets worldwide. As the world’s two largest economies, the bilateral relations between the US and China affect their respective national economies and the wider international system. The implications of this trade war extend beyond tariffs and trade deficits, touching upon deeper strategic concerns and global governance issues.
Causes of the Trade War: Beyond Trade Deficits
While trade deficits have been cited as a primary cause of the conflict, the reasons are far more complex. In 2017, the US reported a $375 billion trade deficit with China, a figure frequently referenced by the Trump administration to justify its decision to impose tariffs. However, the underlying causes of the trade war include issues such as intellectual property theft, forced technology transfers, and the lack of reciprocal access to Chinese markets.
The Trump administration imposed the first round of tariffs in March 2018, targeting $60 billion worth of Chinese imports, following an investigation under Section 301 of the Trade Act of 1974. In response, China retaliated by imposing tariffs on US products, signalling the beginning of a tit-for-tat escalation. This was not just about economic protectionism but a strategic effort by the US to limit China’s growing technological and economic influence.
Global Impact: Reshaping Trade and Supply Chains
The trade war has caused significant disruptions to global supply chains. Businesses in both the US and China have sought alternative markets to mitigate the impact of higher tariffs. For instance, US imports from countries like Vietnam, Mexico, and India have surged as companies shifted production to avoid tariffs on Chinese goods. According to data from the Congressional Research Service, US imports from Vietnam increased by 35% between 2018 and 2019, highlighting the effect of trade diversion.
China’s economy, heavily reliant on exports, has also faced challenges. By 2019, China’s GDP growth slowed to 6.0%, its lowest rate in nearly three decades. The impact on sectors such as manufacturing, where China had traditionally been dominant, has been profound. Furthermore, the reduction in US imports from China has reshaped global trade flows, with countries like Mexico benefitting from increased exports of goods such as motor vehicles and electronics.
Political Ramifications: A Strategic Geopolitical Struggle
The trade war between the US and China goes beyond economic concerns and highlights a deeper geopolitical struggle. From a US perspective, the conflict represents an attempt to limit China’s rise as a global power. The National Security Strategy released by the Biden administration in 2022 emphasised the need to counter China’s influence, not just in trade but also in sectors such as technology and defence.
China, on the other hand, views the US’s actions as an attempt to stifle its economic growth and technological development. President Xi Jinping has been clear in his speeches, describing China’s determination to develop independent technological capabilities and reduce its reliance on foreign imports. This strategic positioning has led both countries to double down on their national security concerns, further entrenching the trade war.
Both the Trump and Biden administrations have maintained the position that China represents a long-term strategic threat to US global dominance. The imposition of tariffs on Chinese goods, coupled with investment restrictions, reflects the US’s desire to protect its industrial base and technological superiority. The Biden administration’s continuation of the trade war, despite initial hopes of reconciliation, demonstrates the bipartisan consensus in the US regarding the threat posed by China.
The Role of International Institutions
The World Trade Organization (WTO) was established on 1 January 1995, following the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade (GATT). Its purpose is to promote free trade and resolve disputes among member nations. However, the WTO has struggled to mediate the US-China trade war effectively. Although both countries are members, the dispute escalated beyond the WTO’s capacity, with the Dispute Settlement Body overwhelmed by complaints filed by both sides after the US imposed tariffs on Chinese goods in 2018. The WTO’s limited enforcement power and lengthy resolution process allowed the conflict to grow unchecked.
The trade war has exposed the limitations of the WTO in managing disputes between major economic powers. As countries increasingly resort to unilateral measures, such as tariffs and export bans, the multilateral trading system risks being undermined. The US has been particularly vocal in its criticism, accusing the WTO of being ineffective in addressing China’s trade practices.
Future Outlook: Uncertain Path Ahead
As of 2024, the trade war shows little sign of resolution. While the US and China signed the Phase One trade deal in January 2020, which included commitments from China to purchase $200 billion in US goods and services over two years, the core issues remain unresolved. Intellectual property theft, state subsidies to Chinese firms, and forced technology transfers continue to be significant points of contention.
The global economic slowdown caused by the COVID-19 pandemic has further complicated the situation. Both the US and China have prioritised domestic economic recovery, with less emphasis on resolving trade tensions. Additionally, the geopolitical landscape has shifted, with the US forging stronger alliances with countries such as India and Japan to counter China’s influence in the Asia-Pacific region.
The long-term implications of the trade war are profound. In the short term, businesses and consumers in both countries will continue to bear the brunt of higher costs and disrupted supply chains. In the long term, the conflict may reshape the global economic order, with countries increasingly seeking to reduce their dependence on both the US and China. This decoupling could lead to the formation of new trading blocs, fundamentally altering the landscape of global trade.
Conclusion
The US-China trade war represents a turning point in global economic relations. What began as a dispute over trade deficits has evolved into a broader geopolitical struggle with deep economic and strategic dimensions. The conflict has disrupted global supply chains, reshaped trade relationships, and raised questions about the future of international trade governance.
Without a comprehensive resolution to the underlying issues, the trade war is likely to continue, with far-reaching consequences for both countries and the wider world. As the two largest economies, the decisions made by the US and China in the coming years will have profound implications for the future of global trade and economic stability.
Aric Jabari is a Fellow, and the Editorial Director at the Sixteenth Council.
