The US-China trade war has been an ongoing issue with major developments and impacts over the past few years. Officially beginning in 2018, this trade war has significant implications for the world’s two largest economies and continues to evolve to this day. This research paper will analyze the origins of tensions between the US and China, key events that have transpired as part of the trade war, as well as examining economic and geopolitical impacts and implications going forward.
Trade tensions between China and the United States have been simmering for decades but came to a head in early 2018. Among the major issues cited by the Trump administration were the US trade deficit with China, concerns over Chinese industrial policies like “Made in China 2025”, and allegations of unfair Chinese trade practices like cyber theft of US intellectual property, forced technology transfer requirements, and Chinese subsidies provided to domestic industries. The Trump administration contended that previous US administrations and the World Trade Organization (WTO) had failed to adequately address unfair Chinese trade practices.
In March 2018, President Trump announced plans to impose tariffs on imported steel and aluminum, with China being a major target. This was followed by an escalating series of retaliatory tariffs between the US and China throughout 2018 and 2019. In July 2018, the first round of US tariffs on $34 billion worth of Chinese imports took effect, targeting industrial products. China responded immediately with its own tariffs on US imports. This was followed by a second round of US tariffs targeting $16 billion of Chinese goods in August. In September 2018, the US imposed 10% tariffs on $200 billion worth of Chinese goods, including consumer products. China responded with tariffs on $60 billion worth of US goods.
By May 2019, negotiations between the US and China broke down after the Trump administration accused China of backtracking on commitments made earlier in the talks. In response, President Trump increased existing tariffs on $200 billion of Chinese goods from 10% to 25% and threatened additional tariffs on the remaining $300 billion worth of untaxed Chinese imports. China retaliated with its own tariff increases. The trade war escalated as the US officially designated China as a currency manipulator regarding its handling of the yuan. This marked a major downturn in bilateral relations between the world’s two largest economies.
Progress towards resolving tensions emerged in late 2019. In October, the US and China agreed on an initial “Phase One” trade deal following negotiations. Key aspects of the interim agreement included China agreeing to purchase an additional $200 billion worth of US goods over the next two years, stronger protections for US intellectual property, as well as refraining from currency manipulation. As part of the deal, the US suspended plans to impose new tariffs and rolled back some existing tariffs. Despite the Phase One agreement, many significant issues and underlying sources of trade tensions remain unresolved between the US and China. Most tariffs on hundreds of billions of dollars of trade between the two countries remain in place while further negotiations continue.
Over the past few years, the economic impacts of the trade war have been substantial. Numerous studies by the International Monetary Fund (IMF), World Bank, and other institutions have found the trade conflict significantly reduced global GDP growth rates. The IMF estimated global GDP losses could reach around 0.8% annually. China’s GDP growth slowed from 6.7% in 2018 to around 6% in 2020, while the US-China trade deficit also declined. US manufacturing industries were hurt due to rising input costs from tariffs and disrupted supply chains, while exports of agricultural goods to China dropped significantly. Consumer prices also increased in both countries due to tariffs. The trade war has caused significant damage while achieving only limited concessions, despite generating economic uncertainty worldwide.
In addition to economic effects, the rise of strategic competition between the US and China has exacerbated overall geopolitical tensions. Beyond just trade issues, the bilateral relationship has deteriorated due to disputes over technology, human rights, the South China Sea, Taiwan, Hong Kong, and other sensitive national security issues. While cooperation exists on issues like climate change and North Korea, the power transition dynamics and ideological differences between the two global powers remain significant challenges moving forward. Moreover, the COVID-19 pandemic has further inflamed tensions amid accusations over the initial origins and handling of the crisis in Wuhan.
Looking ahead, complete resolution of the trade war seems unlikely in the near-term given the scope and root causes of disputes that extend beyond economic issues alone. Close economic ties will persist due to global supply chains, but decoupling certain strategic industries is a priority for both nations due to national security sensitivities. Continued strategic competition for technological leadership will also fuel further tensions. While the Biden administration seeks to repair traditional US alliances as a counterweight to China’s rise, a new Cold War-like state of ideological confrontation remains a looming risk. Ultimately, preventing escalating conflict amid great power rivalry will be crucial but challenging. The US-China relationship is now defined by ever deepening economic interdependence and strategic rivalry simultaneously. How effectively policymakers manage this complexity will shape global economic and geopolitical dynamics for years to come.
The ongoing US-China trade war exemplifies a profound structural shift underway in global affairs due to China’s rapid economic ascent and strategic ambitions challenging longstanding US dominance. While partially aimed at addressing legitimate concerns over perceived unfair trade practices, the conflict also stems from deeper tensions arising from the power transition dynamics between incumbent and rising powers. Managing the economic interdependence of globally integrated supply chains while containing the geopolitical implications of China’s rise presents complex policy dilemmas with no easy answers. Moving forward, moderating strategic distrust will be crucial to prevent further disruption to the global economy from escalating confrontation between Washington and Beijing. Stable cooperation, when possible, will also be important to address transnational challenges like pandemics, climate change, and nuclear nonproliferation that require international cooperation despite geopolitical rivalry. Resolving the trade war will thus depend not just on tariff negotiations, but on each side’s ability to understand the other’s core interests and find accommodations within an increasingly multipolar global power dynamic.
Andrew Stroud