ENDLESS TRADE DUEL: CHINA VS. THE UNITED STATES

From Trump’s Tariffs to the Fragile 2025 Truce

The tariff hostilities between the world’s two largest economies erupted in March 2018 when President Donald Trump signed a memorandum imposing duties on roughly USD 50–60 billion of Chinese products. That unilateral action was described as “a threat to global trade.” From that moment forward, sanctions escalated. The United States and China imposed additional tariffs on each other, in some cases reaching triple digits, across thousands of industrial, technological, and agri-food products. For instance, in 2018 China halted all purchases of U.S. soybeans, leaving nearly seven million tons pending. At the same time, Washington began imposing technological restrictions, banning companies such as Huawei from its networks and sanctioning other Chinese firms on grounds of national security. This collision of tariffs and tech blockades marked a rupture in globalization, forcing companies and governments to redesign their value chains.

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Tariffs and Retaliation: The Escalation Intensifies

In the years that followed, the conflict hurt both countries and global trade. U.S. consumers paid tens of billions of dollars in tariffs, and sectors such as agriculture and manufacturing suffered export cuts as China throttled imports of U.S. pork, soybeans, and automobiles. China retaliated with equivalent tariffs on U.S. goods. The Trump administration expanded duties. In August 2019, it announced tariffs rising from 25 percent to 30 percent on nearly USD 250 billion in additional Chinese imports. These measures further strained the global economy. The United States experienced a slowdown in manufacturing and economic growth, attributed in part to the trade war.

During those years, a partial “decoupling” occurred. Numerous companies began relocating their factories outside China to other Asian countries such as Vietnam or Taiwan, and even Latin America. This phenomenon of nearshoring and diversification bolstered economies such as Mexico and Vietnam, which positioned themselves as alternative suppliers to the U.S. market. However, experts emphasize that a large share of that production remained tied to Chinese capital, including Chinese subsidiaries abroad, and in many cases required technological inputs imported from China.

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Phase One and a Change of Administration

In January 2020, a partial agreement known as “Phase One” temporarily eased tensions. China committed to purchasing more U.S. agricultural and manufactured goods, and Washington reduced some of the originally planned tariffs. This truce gave global markets brief relief. However, the COVID-19 crisis and the transition in the White House disrupted the process. The new Biden administration preserved most punitive tariffs, covering about USD 370 billion in Chinese imports, while reviewing trade policy. U.S. Trade Representative Katherine Tai warned that the 2020 agreement had not meaningfully addressed the United States’ structural concerns, including state subsidies, monopolistic practices, and intellectual property theft. Biden therefore adopted a pragmatic approach, initiating bilateral dialogues without abandoning tariffs and opening channels with allies to construct a coordinated strategy toward Beijing. Until 2024, tensions remained simmering, with threats of new tariffs, technological vetoes such as chip export restrictions, and diplomatic maneuvering in multilateral forums.

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Global Economy: Supply Chains Under Pressure

The trade war had a worldwide impact. Global trade slowed in its rate of growth. In 2019, the WTO warned that protectionism would suppress international exchange. European Commissioner Pierre Moscovici estimated that an escalation could subtract between 0.5 and 0.6 percentage points from the GDP of both China and the United States. Sectoral data show that China’s share of U.S. imports dropped within a few years, while exports to the United States from alternative suppliers increased. The phenomenon appears to be a reallocation. Mexico and Vietnam led market-share gains in the U.S., while also increasing sales to the rest of the world. Research from CEPR even suggests that many of these factories still used Chinese inputs or maintained Chinese parent companies.

At the same time, unilateral escalation affected suppliers and customers of both superpowers. Technology, automotive, and chemical companies reported bottlenecks. Tariffs on intermediate goods and restrictions on rare earths and semiconductors created uncertainty in global value chains. In agriculture, world markets were reshaped. China’s reduced purchases of U.S. soybeans and corn opened opportunities for Brazil, Argentina, and other exporters. Nonetheless, experts agree that despite isolated winners, the global damage was considerable: reduced investment, increased logistics costs, and reduced economies of scale in industries that rely on international integration.

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Mexico, Vietnam, and Europe: Strategic Repositioning

Within this global reconfiguration, some cases stand out. Mexico leveraged its geographic proximity and the USMCA trade agreement to attract relocated manufacturing. According to the Mexican government, in 2023 Mexico displaced China as the main manufacturing exporter to the United States for the first time. Then-Secretary Marcelo Ebrard noted that the nearshoring strategy seeks to increase domestic content in exports and capture investment from U.S. supply chains. Key sectors such as automotive, electronics, and home appliances have opened new plants in northern and Bajío states to avoid Chinese tariffs.

Vietnam was also one of the major beneficiaries. Prior economic analyses indicated that U.S. and Chinese companies redirected orders to Vietnam that had previously been fulfilled from China, stimulating local manufacturing and Vietnamese exports. In 2019, the trade diverted by the trade war was estimated to be nearly eight percent of its quarterly GDP. Meanwhile, economies in East Asia, including Taiwan and South Korea, also gained ground by supplying technologies and components.

Europe and Germany felt the shock in a different way. Not being direct parties to the conflict, they initially seemed unaffected, but the German economy suffered from the contraction in global trade. German exports to the United States fell significantly, for example minus 7.4 percent in the first months of 2024, partly due to Washington’s protectionist stance. Prior U.S. measures also affected Europe. Steel and aluminum tariffs increased input costs for German industry, and the Airbus–Boeing dispute triggered new bilateral tariffs. In summary, Germany lost a climate of global trade certainty, forcing the European Union to seek alternatives such as new trade agreements and strengthening the internal market.

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Tactical Truce in 2025: Peace or Mirage?

Finally, in October 2025, an apparent ceasefire took place. At the APEC summit in South Korea, Xi Jinping and Donald Trump agreed to reduce tariffs on select sectors and pause complementary sanctions such as duties on fentanyl precursors and rare earth controls. Trump celebrated the meeting as “incredible,” adding that the two leaders had maintained a cordial relationship. Specifically, the United States agreed to lower certain tariffs to 47 percent, down from 57 percent, and China suspended for one year its restrictions on critical mineral exports. Headlines called it an “apparent trade truce.”

However, the calm is precarious. Analysts point out that the 2025 agreement reverses only tactical measures and does not touch the structural pillars of the dispute. Reuters described it as a fragile ceasefire that returns the situation to the status quo before the latest escalation, while leaving underlying causes unresolved. China maintained legacy export licenses for critical components, and the United States kept broad baseline tariffs. In addition, Washington’s complaints about Chinese industrial subsidies, the Made in China 2025 policy, and allegedly unfair practices remained unaddressed. Both leaders committed to continued talks, yet many analysts warn that the agreement is more about buying time than resolving core differences.

The current truce may calm corporate sentiment in the short term, but it does not solve macroeconomic tensions or mutual distrust. As one researcher noted, China’s strategy of reacting to every U.S. move has proven sustainable over time. In this context, the trade war, perhaps postponed, threatens to become one of the long-duration conflicts of the twenty-first century.

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The Global System at Stake: Who Wins and Who Loses?

The bilateral dispute has put the multilateral system at risk. By hurting the flow of goods and capital, it harms interdependent countries and can trigger new power blocs. On one side, traditional U.S. allies debate how to balance strategic interests with Beijing, at times aligning with Washington in demands for reform to China’s trade regime. On the other side, emerging economies attempt to capitalize on the vacuum left by China in certain markets, but without unlimited resources. In the final balance, no war is good for global trade. Even seemingly advantaged countries such as Mexico, Vietnam, Brazil, Taiwan, or South Korea face long-term risks if the dispute persists, as technological spillovers and capital still flow through integrated networks.

Ultimately, the tariff war between the United States and China is redefining the rules of the global economic game. The traditional trade model based on efficiency and cooperation now faces a geopolitical logic. This confrontation affects the credibility of global institutions and forces governments and companies to reassess their trade and investment strategies. As economists warn, although the world economy may find temporary relief through supply chain diversification, persistent disruptions and structural tensions expose the vulnerabilities of a highly interdependent global trade system. At the end of this prolonged standoff, the open question remains whether the emerging status quo will be more plural and regionalized, or whether the contest will lead to another cycle of protectionism with no clear winners.