Ripple effects of US policy on Chinese trade
This article is authored by Ananya Raj Kakoti, scholar, international relations, Jawaharlal Nehru University, New Delhi.
The United States (US)’s firm stance on Chinese products has become a cornerstone of its economic strategy, transcending party lines and administrations. This continuity underscores a deeper consensus: countering China’s growing economic and technological influence is not a partisan issue but a long-term strategic priority. What began as a trade dispute over deficits and intellectual property concerns has evolved into a broader economic confrontation with significant implications. As the world’s two largest economies clash, the consequences ripple through global markets, affecting supply chains, trade relationships, and economic growth worldwide.
The origins of the current US-China trade tensions can be traced to 2018 when the Trump administration imposed sweeping tariffs on Chinese goods. The measures were justified on grounds of addressing trade imbalances, intellectual property theft, and China's state-driven economic model. Although the Biden administration has adopted a different tone, it has largely maintained these policies while expanding their scope to include restrictions on technology and measures addressing human rights issues. This bipartisan approach reflects a broader recalibration of the US's economic relationship with China, aiming to reduce dependence on Chinese imports, protect national security, and counter China’s global influence.
The impact on the US economy has been multifaceted. While these policies aim to protect domestic industries, they have led to higher costs for businesses and consumers. Tariffs on Chinese goods have increased the prices of a wide range of products, from electronics to home appliances, contributing to inflationary pressures. For manufacturers reliant on Chinese components, these additional costs have strained profit margins and disrupted supply chains. Industries such as automotive, electronics, and renewable energy have faced significant challenges as they grapple with delays and shortages of critical materials. Furthermore, the unilateral nature of US policies has sometimes alienated allies, who share concerns about China but prefer collaborative approaches over direct confrontation.
China, too, has faced significant challenges. Restrictions on Chinese tech giants like Huawei have hampered its technological ambitions, particularly in semiconductors and advanced technologies. The US's tough stance has also exacerbated China’s internal economic challenges, including a slowing economy, youth unemployment, and a struggling property sector. In response, China has doubled down on its "dual circulation" strategy, which focuses on boosting domestic consumption while maintaining export competitiveness. Additionally, it has sought to deepen trade ties with regions such as Africa, Latin America, and Southeast Asia to reduce its dependence on US markets.
However, the consequences of US-China trade tensions are not confined to the two countries involved. Globally, businesses and economies have been forced to adapt to the shifting dynamics. Supply chains, which have long relied on China as a manufacturing hub, are being reconfigured to mitigate risks. This has led to increased investments in countries like Vietnam, India, and Mexico, which have emerged as alternative production hubs. While these shifts benefit these economies, they also present challenges, including labour shortages, infrastructure demands, and rising wages. The trade tensions have also fuelled a “tech cold war,” compelling nations to choose between US and Chinese technology ecosystems. The banning of Huawei’s 5G equipment in many western countries has disrupted telecommunications projects, increased costs, and deepened divisions in the global tech landscape.
Emerging economies reliant on trade with China or the US face particular vulnerabilities. African nations benefiting from Chinese infrastructure investments or Latin American countries heavily dependent on agricultural exports to China are caught in the crossfire. Reduced Chinese demand for commodities and US protectionist policies strain their economic growth. Meanwhile, global inflationary pressures, driven by tariffs, supply chain disruptions, and increased production costs, have further complicated recovery efforts following the Covid-19 pandemic.
Despite the challenges, the shifting trade dynamics have created opportunities for some economies. Vietnam and India, for instance, have attracted foreign investment as companies relocate production from China. India’s Production Linked Incentive (PLI) scheme, aimed at boosting domestic manufacturing, has positioned it as a viable alternative for global companies. However, countries deeply integrated with China, such as South Korea and Japan, face the difficult task of balancing their trade relationships while navigating growing tensions.
The path forward requires careful navigation. While the US remains steadfast in its tough stance, a more multilateral approach could mitigate some of the fallout. Working with allies to address shared concerns about China’s trade practices would enhance the effectiveness of these measures while minimising disruptions to global markets. Businesses, too, must diversify supply chains to reduce reliance on any single country, enhancing resilience against future shocks. At the same time, both the US and China must prioritise innovation to maintain competitiveness, with collaboration in areas like climate change and global health serving as potential avenues to rebuild trust.
The US's trade policies toward China reflect a shift in the global economic paradigm, underscoring the interconnectedness of markets and the challenges of unilateral decision-making. While the policies aim to secure national interests, their global consequences highlight the need for a more collaborative approach to address shared challenges. As the world grapples with these shifts, one thing is clear: Prolonged conflict will come at a collective cost, and the future of global trade depends on finding common ground.
This article is authored by Ananya Raj Kakoti, scholar, international relations, Jawaharlal Nehru University, New Delhi.