The U.S.-China relationship is at a pivotal juncture, particularly in the economic domain. What began during Donald Trump's first term as a bid to address long-standing trade imbalances has now evolved into a full-blown economic contest that could define the global order in the coming decades. Amid the intensifying rhetoric and retaliatory tariffs, China claims the United States is actively seeking trade talks—an assertion that reveals both Beijing's economic anxieties and its effort to portray strength under pressure.
The origins of the current trade clash trace back to the first Trump administration. The United States Trade Representative (USTR) launched an investigation under Section 301 of the Trade Act of 1974, concluding that China was engaging in unfair trade practices, including forced technology transfers, state subsidies, intellectual property theft, and currency manipulation. In response, Washington imposed sweeping tariffs, and China retaliated in kind. The tit-for-tat measures laid the groundwork for a protracted economic confrontation.
One particularly contentious issue has been China's circumvention of trade rules through third-party countries. Mexico, for example, has been used by Chinese firms as a conduit to enter the U.S. market by exploiting the North American Free Trade Agreement. By routing goods through Mexico, Chinese exporters could avoid direct U.S. tariffs, undermining Washington’s effort to restore fairness to its trade regime.
Trump’s broader ambition, however, went beyond simply rebalancing trade numbers. His administration aimed to achieve industrial parity with China, revive domestic manufacturing, and dismantle decades of economic dependence on low-cost Chinese production. The declaration of April 2 as "Liberation Day" for American trade policy symbolized this intent—a move to free the U.S. from what it viewed as exploitative global trade norms and realign them in favour of American workers and producers.
Under the Trump administration’s renewed efforts in 2024-25, the trade war has escalated dramatically. Current tariff levels stand at roughly 125% imposed by China on U.S. goods, while the U.S. has levied an average of 145% on Chinese imports. These are not symbolic measures—they affect hundreds of billions of dollars in goods and services exchanged annually between the world’s two largest economies.
The economic repercussions have begun to manifest clearly. The U.S. economy contracted by 0.3% in the first quarter of 2025, while China has also reported a slowdown, despite official efforts to mask the extent of the downturn. The cyclical nature of the tariff escalations has introduced uncertainty into global markets, disrupted supply chains, and weakened business confidence. A sustained trade war will not only affect the two protagonists but also send shockwaves through the global economy. Countries with deep trade linkages to either the U.S. or China—such as Vietnam, South Korea, Malaysia, and the Philippines—face significant exposure. Vietnam, in particular, has emerged as a major exporter of goods like footwear and electronics to the United States, and any decline in U.S. consumption or Chinese component supply can have direct consequences for its economy.
Southeast Asia, broadly speaking, is walking a tightrope. These smaller economies often attempt to hedge between the two superpowers, leveraging their strategic geography and manufacturing capabilities. However, prolonged conflict between Washington and Beijing makes such balancing acts increasingly difficult. Recognizing this, Chinese President Xi Jinping recently made a whirlwind tour of three Southeast capitals, seeking to shore up diplomatic goodwill and economic ties amid Trump’s renewed tariff barrage.
Behind the rhetoric lies a carefully calibrated strategy. Trump’s approach hinges on using America’s economic might as a pressure point to force structural reforms in China. His administration has signalled it will not relent unless China revises its state-led industrial model and opens up its markets more equitably. Simultaneously, Washington aims to lure global investors and manufacturers toward the U.S., reshoring production and reducing dependence on Chinese inputs.
China, however, is not without leverage. It remains the world’s second-largest economy and continues to grow—albeit at a slower pace. With substantial dollar reserves, a trade surplus with over 100 countries, and the sprawling Belt and Road Initiative (BRI) infrastructure network, Beijing has built economic entrenchments across Asia, Africa, and parts of Europe. These ties enable it to blunt some of the pressure from U.S. tariffs and shift its economic orientation gradually toward emerging markets. Yet, even as both sides project toughness, there are quiet signals of diplomatic manoeuvring. Recent reports suggest that the fentanyl crisis—long a source of U.S. concern—is being used as a backchannel to initiate limited economic talks. While neither side wants to appear to blink first, both are assessing the costs of escalation.
The Trump administration’s dual-pronged strategy is becoming clearer: intensify economic pressure on China while deepening trade and investment ties with allies and partners. Simultaneously, it is coupling its economic push with strategic deterrence. A recent executive order on maritime revitalization underscores the administration’s belief that controlling sea lanes— particularly in the Indo-Pacific — is essential to countering China’s geopolitical and commercial expansion.
For India, the evolving U.S.-China trade war presents both risk and opportunity. On one hand, it may face collateral damage from global supply chain disruptions and demand slowdowns. On the other, India stands to benefit from “China-plus-one” strategies adopted by global firms seeking alternatives to China.
As American companies look to diversify sourcing and manufacturing, India could emerge as a critical hub—if it can reform its business climate, reduce logistics bottlenecks, and offer competitive incentives. Conversely, should a thaw emerge between the U.S. and China, India may find the urgency behind some of its trade and investment appeal diminished.
As things stand, the U.S.-China economic clash is not just about tariffs—it is a contest for influence, rules, and long-term supremacy in a multipolar world. The outcome will shape not only their bilateral relationship but the structure of the global economy.
(Disclaimer: The opinions expressed in this article are those of the writer. The facts and opinions expressed here do not reflect the views of ETV Bharat)
