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Don’t Be Fooled: The China-US Trade War Is Here to Stay

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China Power | Economy | East Asia

Don’t Be Fooled: The China-US Trade War Is Here to Stay

The tariffs may be lower, but the structural tensions at the heart of the trade conflict remain unchanged.

Don’t Be Fooled: The China-US Trade War Is Here to Stay

U.S. and Chinese delegations, led by U.S. Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer, and Chinese Vice Premier He Lifeng, meet for trade talks in Geneva, Switzerland.

Credit: Office of the U.S. Trade Representative

Over the weekend, China and the United States hailed a “constructive” round of trade talks – their first official engagement since the Trump administration imposed a sweeping 145 percent tariff on all Chinese goods imports. An agreement announced in a joint statement called for a 90-day rollback of mutual tariffs to 10 percent, not including the several rounds of tariffs that preceded the tit-for-tat escalations seen in April. 

Yet the structural tensions at the heart of the trade conflict remain unchanged. Washington’s deepening concerns over China’s industrial ascent, which is viewed as part of the broader national security threat posed by Beijing, are largely bipartisan, even as the U.S. post-industrial economy remains deeply reliant on global supply chains of which China is a critical part. The result is a protracted stalemate that no round of negotiations is likely to resolve, one that underscores China’s economic resilience and expanding role in the global economy.

Washington’s concerns over China’s industrial dominance and perceived national security threat, culminating in the current Trump administration’s aggressive tariff policies, have persisted across both the Trump and Biden administrations. From the initial rounds of Trump-era tariffs to Biden’s semiconductor export restrictions, this continuity reflects a rare and enduring bipartisan consensus on the need to reduce China’s global influence. 

In turn, China has adapted. Over the past decade, China has become less reliant on exports to drive GDP growth, with a notable decline in exports to the United States. In 2018, exports to the U.S. accounted for 3.5 percent of China’s GDP, but by 2023, this figure had fallen to 2.9 percent, signaling China’s strategic shift toward a more consumption-driven economy. Meanwhile, China has also sought to diversify its export market beyond traditional Western partners. Chinese companies have increasingly invested in and established trade relationships with countries in the Global South both as emerging markets and as destinations for trade rerouting. 

Take Cambodia and Vietnam as examples. In 2023, China exported approximately $12.75 billion worth of goods to Cambodia, including fabrics, electronics, machinery, and plastic raw materials. That same year, Cambodia exported $8.9 billion worth of goods to the United States, mainly garments, footwear, and travel goods – all downstream products of the Chinese imports.

Similarly, Vietnam imported goods worth $137.6 billion from China – largely electronics, machinery, plastics, and steel – and exported around $118.4 billion to the U.S., including electronics, machinery, furniture, clothing, and footwear. While these goods are labeled “Made in Cambodia” or “Made in Vietnam,” they heavily depend on Chinese raw materials and manufacturing. Some have argued that such facts underscore the Trump administration’s strong emphasis on enforcing rules of origin. By expanding broad tariffs on these countries, Washington is in effect striking at segments of China’s supply chain.

The immediate effect of the recent U.S. tariffs is evident. Following the tariff announcement, U.S. companies rushed to frontload orders before higher duties took effect, creating a production spike in China. In March, Chinese exports surged by 5.6 percent year on year, as many factories operated at full capacity. Beijing warned of  “resolute and reciprocal” countermeasures. Meanwhile, U.S. consumer confidence plunged due to market volatilities and retailers warned of an impending major shortage of goods. All of these tensions culminated in the U.S. and China agreeing to a temporary step back of steep reciprocal tariffs on May 11 – a move that may further widen the trade imbalance over the next 90 days.

The broader lesson is clear: China’s economic resilience has outpaced expectations. Far from folding under pressure, China has proven difficult to replace. Its manufacturing dominance is rooted in scale, industrial maturity, and relentless cost efficiency. Many of its largest manufacturers – those earning over 20 million yuan (about $2.8 million) per year – operate on razor-thin margins. According to official figures, in 2023, the average industrial profit margin stood at just 5.76 percent, with giants like Foxconn and Luxshare – some of the biggest Apple suppliers – operating between 4 and 7 percent. 

This underscores a critical truth about China’s industrial landscape: after decades of brutal competition and consolidation, China’s manufacturing powerhouses have survived by building vast, mature production networks, suppressing labor costs, and accelerating automation. China now hosts 1.76 million units of industrial robots, nearly half of the world’s total, cementing China’s manufacturing dominance. For the U.S., trying to relocate supply chains to Southeast Asia or bring them home would raise production costs significantly, with the burden ultimately falling on businesses and consumers. 

Some of this fallout is already evident. After the “Liberation Day” tariff announcement, the U.S. stock market slumped, driving fears of an economic downturn, including increased inflation. Between 2017 and 2025, the U.S. Consumer Price Index rose by 31.4 percent – an increase from the 26.6 percent rise recorded from 2005 to 2016. Inflation has disproportionately impacted low-income households, contributing significantly to the decline in the administration’s approval ratings.

Structural issues, including a shortage in manufacturing labor, high costs, and a lack of competitive domestic infrastructure, continue to stymie efforts for a U.S. manufacturing revival. Bridging the productivity and scale gap with China will require significant public investment and political will – both of which remain uncertain.

Even close allies are feeling the strain. Japan has long promoted a “China+1” strategy to diversify production to Southeast Asia, but progress has been slow. A 2023–2024 JETRO survey of about 3,000 firms found that over half still view China as a key sourcing destination – particularly for electronics, automotive components, and precision machinery – despite growing geopolitical risks. While juggling its China dependence, Japan was not exempted from the Trump administration’s steel and aluminum tariffs, causing official protest and fraying economic ties. 

The European Union faces a similar dilemma. Despite efforts to reduce reliance on Chinese imports, China remains the EU’s largest import partner, accounting for over 21 percent of total imports. European automakers, in particular, remain reliant on Chinese battery suppliers, who dominate about 70 percent of the global battery market. This dependence – combined with growing EU-U.S. security cooperation – has forced European policymakers to navigate rising geopolitical tensions while trying to preserve economic stability. 

Rather than isolating China, tariffs have arguably strengthened its global standing. In recent years, Beijing has doubled down on key strategic sectors under initiatives like “Made in China 2025,” gaining dominance in electric vehicles, critical minerals, robotics, and solar technology and transcending its former status as a hub of low-cost manufacturing. Tariffs have failed to undermine these strengths and have instead imposed real costs on U.S. consumers and investors.

The bottom line is clear: trade talks like those held over the weekend are unlikely to change the core dynamics of China-U.S. conflict. Washington’s national security concerns over a rising China remain unresolved, and the underlying trade imbalance persists. The United States will not quickly rebuild its industrial base or reduce its dependence on China, while Beijing’s need for U.S. goods remains modest. These economic and strategic asymmetries are structural and deep-rooted. And with neither side politically willing to back down, this conflict is likely to drag on.

In the end, the China-U.S. tariff war hasn’t achieved the Trump administration’s intended goals to swiftly reshape the global trade landscape. Instead of weakening Beijing, it has exposed the limitations of a unilateral, tariff-first strategy and strained alliances. Despite the temporary rollback signaled by the recent tariff negotiation, the challenge ahead should be clear for global businesses and policymakers: as the U.S. continues seeking to narrow trade imbalances, navigating a prolonged trade tension may well define the near future.