US–China 2.0: Trump’s New Trade War?

A Contentious Relationship

The relationship between the United States and China has historically been tense. However, more recent presidents such as Clinton and Obama both adopted an approach of engagement and co-operation with China, while still maintaining a competitive edge. They encouraged closer interaction, Clinton, for example, believed that the growth of China’s middle class, as its economy expanded, would eventually lead to liberal democratic reform. Therefore, it would be in the U.S.’ interest to deepen ties. Likewise, Obama had a 4 day state visit to China in November 2009 in which he and Chinese President Hu Jintao, ‘reached agreement to advance China–U.S. relations in the new era’. However, since Trump’s presidency, following Obama’s, many of these efforts have been reversed. Trump frequently made negative statements and, at times, even threats towards China, marking a shift away from the cooperative tone of the previous administration, with his second term having marked an even more intense dynamic of convergence. This so-called “new era” has led many to ask: what does the future hold for these two superpowers? Will their relationship continue to converge, leading to greater polarization and conflict, or will it move toward deeper co-operation and peace? Many analysts have attempted to answer this question through the lens of three major political ideologies: realism, liberalism, and constructivism. Realists generally argue that the relationship will remain stable due to mutual interests and power balancing. Liberals, by contrast, foresee growing confrontation and conflict. Constructivists, meanwhile, suggest the outcome could go either way, depending on the evolving identities, norms, and perceptions that shape foreign policy.

A key way in which China has asserted itself as a global leader is through trade. Back in 2018, President Trump initiated a trade war by imposing widespread tariffs on goods entering the U.S., citing concerns over China’s large trade surplus, the acquisition of American technology through unfair practices, and broader threats to U.S. national security. This move reflected Trump’s determination to push back against China’s growing global influence — an influence largely strengthened through its trade dominance. To many, Trump may have previously appeared inconsistent or ineffective in his ability to follow through with his ‘threats’, but this aggressive stance showed his resolve in confronting China head-on. Consequently, at the time, China, which was the U.S.’s second-largest exporter, was hit with tariffs reaching up to 54%.

Predictably, China retaliated with its tariffs on American goods (see Graph 1). Today, we see a repeat of this strategy. On April 2, 2025, President Trump announced new tariffs of at least 10% on a wide range of imported products. Chinese goods face even harsher treatment, with some products now subject to tariffs as high as 125%. In response, China announced retaliatory tariffs of up to 125% on American exports. This new escalation clearly demonstrates the ongoing shift in U.S. foreign economic policy away from liberalism toward a nationalist, protectionist approach.

Understanding Tariffs

Tariffs are taxes imposed on imported goods. They serve several purposes: they can protect domestic industries by making foreign goods more expensive; they can generate revenue for the government; and they can also serve as tools in international negotiations. Trump’s use of tariffs fits squarely within his “America First” agenda, aiming to enhance the competitiveness of American-made goods by raising the cost of imports. Although the administration has officially justified the most recent tariffs as a move to combat illegal drug imports, it is clear that broader economic and strategic motivations are at play.

The Current Trade Imbalance

China’s entry into the World Trade Organization (WTO) in 2001 marked a key moment in global trade, prompting a major reduction in trade barriers. At the same time, China experienced rapid growth in manufacturing productivity throughout the 1990s and 2000s. These two developments commonly referred to in the literature as the “China shock” or “China trade shock” were the main drivers behind China’s dramatic trade expansion and increasing share in the U.S. import market.

The trade war officially began during President Trump’s first term in 2018. While concerns over the U.S.–China trade deficit and national security were major drivers, other factors played an important role as well. These include Trump’s isolationist stance, his “America First” rhetoric, and growing fears about China’s rise, especially through trade and economic influence. More broadly, China represents a significant challenge to the American-led liberal world order due to its fundamentally different ideology. Given this, it is unsurprising that a global superpower like the United States seeks to maintain its dominance and keep the upper hand.

As of 2024, the U.S. imported around $440 billion worth of goods from China, while only exporting $145 billion in return. This large and ongoing trade imbalance continues to be a key source of friction between the two nations. Analysts such as Lin and Wang have pointed to a range of factors behind the growing U.S. trade deficit. These include a lack of investment opportunities in emerging economies, undervaluation of certain currencies against the dollar, rising global commodity prices, and American over-consumption — made possible in part by the dollar’s dominant position as the world’s reserve currency.

Consequences of the Renewed Trade War

The economic consequences of the renewed trade war are already becoming apparent. Higher prices for imported goods are leading to increased costs for American consumers, with lower-income groups being particularly affected. Businesses that rely on imported materials are also facing higher input costs, which could lead to layoffs, inflation, and overall slower economic growth. Furthermore, the disruption to global supply chains could have knock-on effects across multiple industries, from technology to agriculture. Small businesses are particularly vulnerable in this environment. Many rely on imported goods to sustain their operations, and with the “de minimis” exemption on goods worth less than $800 set to expire on May 2, e-commerce retailers like Temu and Shein have already started hiking prices. This change is expected to further strain small enterprises that depend on affordable imports to remain competitive.

Moreover, according to forecasts by the World Trade Organisation (WTO), the ongoing decoupling between the U.S. and China is expected to cause international trade volumes to fall by 0.2%, with bilateral trade between the two powers projected to decline by as much as 81%.

Lastly, the stock market has demonstrated heightened sensitivity to tariff announcements and related developments. Investor sentiment has remained volatile, with markets often responding sharply to news of new tariffs or ongoing trade negotiations. For instance, following President Trump’s April 2 “Liberation Day” tariffs, the Dow Jones Industrial Average experienced a significant decline. On April 3, the index plummeted by 1,679.39 points (3.98%), marking the fifth-largest point loss in its history. This sharp drop was attributed to investor concerns over escalating trade tensions and the potential economic impact of the announced tariffs. The S&P 500 and Nasdaq Composite also saw substantial declines, with the S&P 500 falling over 274 points (4.88%) and the Nasdaq Composite dropping more than 1,050 points (5.97%) on the same day. These significant market movements underscore the broader economic uncertainty introduced by the trade war.

Whilst ongoing negotiations are underway, it is important to note that history provides reason for caution. During Trump’s first term, the United States and China agreed on a trade deal in early 2020 which aimed to de-escalate tensions. Nevertheless, many tariffs remained in place until well into 2021, demonstrating that even agreements to ease tensions often leave underlying structural issues unresolved.

Key Questions for the Future

The current tensions between the two superpowers reflects the broader shifting balance between China and the U.S. While Trump’s isolationist rhetoric suggests a retreat from global engagement, he still appears determined to maintain U.S. influence and ensure the world continues to gravitate toward American leadership. Interestingly, although the U.S. is often seen as the promoter of a liberal international order, many of Trump’s policies lean toward anti-liberalism.

Several important questions arise: firstly — and perhaps most interestingly, how might shifts in trade relations reshape global dynamics?
Could Trump’s trade policies ultimately work in his favour? Will other states follow by adopting isolationist stances, or might this push some nations closer to China? For example, consider China’s leadership role in the Asian Infrastructure Investment Bank (AIIB), which provides favourable loans to developing countries — loans that the U.S. and the WTO may not offer. Could this growing economic influence further erode U.S. standing and push more states to align with China?

Second, what are the broader implications for the liberal international order? The tariffs represent a continued shift away from multilateral cooperation toward unilateral economic nationalism. In response, China may accelerate efforts to reshape global governance structures. While Beijing denies aiming to lead an “alternative bloc,” it continues expanding South-South trade and development initiatives such as the Belt and Road Initiative (BRI), often framed as inclusive and non-confrontational. However, China’s increasing leadership in institutions like the AIIB and BRICS’ New Development Bank (NDB) suggests a strategic divergence from Western-led frameworks like the IMF and World Bank; offering parallel financing options with fewer conditions. As dissatisfaction grows with the constraints of U.S.-dominated institutions, more states particularly in the Global South, may gravitate toward these alternatives, accelerating a shift toward a more fragmented global economic order.

Third, on the domestic front, sustained high tariffs have triggered price increases for consumer goods across the U.S. economy. Trump’s latest tariffs disproportionately impact electronics, clothing, and household essentials. These are items heavily sourced from China. As prices rise, especially among lower-income groups, political backlash could intensify within a highly polarized society, deepening socio-economic disparities among American citizens.

Lastly, can American businesses adapt? Many firms remain heavily dependent on Chinese supply chains, and efforts to reshore or diversify sourcing are slow and costly. The uncertainty introduced by fluctuating tariffs may deter investment and compound logistical challenges.

Beyond economic concerns, the escalating tensions between the U.S. and China carry significant national security implications. The Trump administration’s ongoing tariff battle has raised fears among analysts that the rivalry could escalate into a Cold War style power struggle. These broader risks are already emerging: recent months have seen heightened tensions through alleged tit-for-tat cyberattacks between the two countries and China’s large-scale military drills around Taiwan. These drills have intensified worries about regional stability and the potential for armed conflict, especially given Taiwan’s close alignment with the United States across both major political parties, despite being governed by the Democratic Progressive Party (DPP). Moving forward, several critical questions arise in light of President Trump’s renewed tariff escalation against China. First, from a national security perspective, will heightened economic pressure push China into deeper alignment with revisionist states like Russia and Iran? Strengthened strategic ties among these nations could shift the global balance of power and challenge U.S. influence in key regions.

The renewed trade war between the United States and China under President Trump’s second term represents a significant turning point in their economic and strategic relationship. While tariffs have been justified as a means to protect American industries and address unfair practices, the wider consequences are becoming increasingly clear. Consumers face higher prices, businesses (especially smaller ones) struggle to adapt, and financial markets remain volatile, reflecting ongoing uncertainty.

However, the impact goes beyond economics. Rising tensions in cyberspace, China’s military drills near Taiwan, and its growing alignment with other revisionist powers show that this rivalry is expanding into multiple arenas, with serious implications for global security. The competition between these two superpowers is no longer just about trade; it is shaping the broader international order.

Though both sides have shown some willingness to negotiate, history teaches us that underlying structural issues are unlikely to be resolved quickly. As economic decoupling accelerates and political divides deepen, the future of global trade, alliances, and international cooperation remains uncertain. The coming period will be critical in determining whether this rivalry leads to further fragmentation and conflict, or if diplomacy can steer both powers toward a more stable coexistence.

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