US-China relations at stake as Trump escalates trade war

The tariffs imposed by President of the United States Donald Trump on China has made the future of US-China relations uncertain.

Although Trump has decided not to impose tariffs on many countries for 90 days, he has increased tariffs on China by a whopping 145%, prompting China to impose 84% tariff on the US, reports Bloomberg.

According to experts, the back-to-back tariffs by the US and China has dramatically escalated conflict between the two global superpowers.

The future of the one of the world's biggest trading relationships hangs in the balance after President Donald Trump's tariff war sparked a standoff between the US and China.

While Trump stepped back from the cliff edge for most countries — announcing on April 9 a 90-day pause on much of his "reciprocal" tariff agenda — he doubled down on China, increasing the new levy on its imports since he returned to the White House to 145%. Vowing to "fight to the end," China responded by hiking its new duties on shipments from America to 84%.

The spiraling tariffs mark a dramatic step-up in trade tensions between the two countries. Prior to 2025, the average import taxes charged by each side on the other were less than 20%, even after the first trade war in Trump's previous term in office.

It's unclear what exactly the endgame could look like. Trump is targeting an elimination of trade deficits with his tariffs, and has said that he wants a balanced relationship with China. But others in his orbit want to go further and have called for a "strategic decoupling" — a tall order after decades of integration between the two economies.

Almost $700 billion of goods are now exchanged between the US and China each year. If a deal to deescalate the situation isn't reached, the steeper duties could result in American consumers facing higher prices across the board — from iPhones to umbrellas — as companies work out how to rejig their supply chains to minimize their tariff bill.

How did US-China trade get so big?

The growth was kickstarted in 2000, when, as China prepared to join the World Trade Organization, the US granted it "permanent normal trading relations" status, meaning it received equal tariff treatment with other trading partners.

When China became part of the WTO a year later and really began to open up its economy, companies in the US and elsewhere began shifting a substantial amount of production to the Asian nation. This hollowed out some domestic American industries in a process later dubbed the "China shock." But it helped bring down the price of consumer goods at home as China became the world's factory.

By 2024, the total value of imports and exports between the US and China was almost nine times higher than in 2001. While Trump's first trade war did put a dent in the relationship, the Covid-19 pandemic sparked a resurgence and Chinese exports to the US hit a record in 2022.

Last year, the three biggest US imports from China were smartphones, laptops and lithium-ion batteries, while liquid petroleum gas, oil, soybeans, gas turbines, and machines to make semiconductors were some of the most valuable US exports to China.

Apple Inc. is one of the US firms that reoriented its supply chain over the past two-and-a-half decades, now contracting much of its manufacturing to firms in mainland China. Until recently, almost all iPhones were made in a few huge factories there — largely by Hon Hai Precision Industry Co., better known as Foxconn — using parts from South Korea, Taiwan, Japan, China, the US and elsewhere.

The California-based tech giant is far from the only company taking advantage of China's deep supply chains and lower costs. More than 70% of the $56 billion of smartphones imported into the US last year were from China, according to Bloomberg analysis of trade data from the US International Trade Commission. Meanwhile, almost 90% of games consoles brought in from overseas by the likes of Sony Group Corp., Microsoft Corp. and Nintendo Co. Ltd were shipped from China too.

Why has Trump targeted China's exports above all others?

Trump's stated goal is to end the US trade deficit and bring manufacturing back to US shores — a popular idea in America's Rust Belt, whose communities were some of the most affected by the loss of jobs during the "China shock." The deficit with China is the largest of all the US trading partners, coming in at $295 billion in 2024.

The gap is even bigger than official figures show because of a tariff loophole in America for "de minimis" merchandise, which enables packages worth less than $800 to enter the country duty-free. That means the US hasn't counted tens of billions of imports from China's discount marketplaces like Shein and Temu in its trade deficit calculations. Trump announced that this exemption for small goods from China and Hong Kong will end from May 2.

The US president has also complained that China didn't abide by the terms of the trade deal signed in his first term, which was meant to redress the import-export imbalance, partly through a huge ramp-up in Chinese buying of American goods. While China did increase its purchases, they fell short of the targeted level and the trade gap was exacerbated by the pandemic-driven surge in US imports.

Beyond trade economics, the US and China are increasingly viewing one another as competitive threats and are trying to reduce their reliance on each other for goods seen as vital to national security. The US has limited or banned exports of many high-end semiconductors and the tools to make them, as it attempts to slow China's technological and military advancement. Without these restrictions, the trade imbalance between the two countries would likely be smaller.

For its part, China has tightened export controls on a number of critical minerals and rare earths — crucial raw materials used in the likes of MRI machines and missiles — making them more difficult for US companies to access. China controls most of the production and processing of a whole host of these metals and minerals.

How will China be affected by the new US tariffs?

Trade accounted for around a third of China's economic growth last year. While direct exports to the US only comprise about 15% of total shipments, that number rises once you include goods sent to Mexico, Vietnam and elsewhere that eventually end up in America.

China's direct exports to the US could fall as American importers balk at the tariffs in excess of 100% that they have to pay, although it will take time to find alternative sources for some goods where there's near-total dependence on China, such as toasters, various chemicals and vitamins, and LED lamps. And for certain products, it could still be cheaper to import them from China than buy US equivalents, if they even exist.

Meanwhile, Chinese buyers will face higher prices for imports from the US, such as soybeans and liquefied petroleum gas, due to Beijing's retaliatory tariffs. But the impact should be softened by China's years-long effort to diversify its trading partners and source fewer commodities from the US, instead turning to Brazil, Russia and other friendlier nations.

That said, the Chinese economy is in a weaker state than during the first trade war, grappling with persistent deflation, lackluster consumer demand and an extended property slump. Analysts at Goldman Sachs Group Inc. have cut their forecast for the country's economic growth to 4% this year, down from 4.5% previously and the 5% recorded in 2024. To offset the hit, China's central bank is likely to cut interest rates to encourage more borrowing and spending, and the government could spend more to boost consumption.

If the levies continue, both foreign and homegrown firms in China could shift production elsewhere, weighing on employment, cutting tax revenue and hurting gross domestic product. This threat to the manufacturing base could spur Chinese officials to expedite the pivot to a more consumer-focused economy, something economists have said is a more sustainable model and which the government has been talking about for years.

How will China's exporters respond to the tariffs?

Chinese-owned exporters have a few options, but none of them are ideal. Firms can move more production to other countries in Asia, including Vietnam and Thailand, as they did during Trump's first trade war. However, China's government is opposed to such an exodus and there's a risk Trump will reinstate the high "reciprocal" tariff rates allocated to those nations after his 90-day pause. Chinese companies making solar panels in Southeast Asia were caught out last year when they were hit with American levies.

Another option for Chinese firms is to try to negotiate lower input prices with their suppliers to offset the impact of the tariffs for purchasers in the US. But that will likely worsen the factory gate deflation that's become endemic in China and further push down corporate profits.

A third alternative is to keep the manufacturing engine running and shift exports from the US to other markets — a move that would likely spark pushback from nations already concerned about a flood of cheap Chinese goods undercutting their producers.

How will Trump's tariffs impact the US?

Tariffs will mean higher prices for US companies and consumers, potentially fewer options on store shelves and more expensive industrial goods and machines. The duties on Chinese goods alone are set to push up prices as companies will be forced to pass down at least some of the additional costs to preserve their margins.

This will increase inflationary pressures in the US, undermining the Federal Reserve's battle with rising prices. And unlike in 2018 and 2019, the new tariffs cover a much broader set of goods from China, including consumer items like smartphones, other electronics and clothing.

Certain US industries and workers will be hit hard by China's retaliatory tariffs. The Trump administration is already considering plans to offer assistance to farmers amid worries that a trade war will have a disastrous effect on America's agricultural producers. China is the largest US export market for soybeans and cotton.

In the last trade war, the US government offered $28 billion to farmers hurt by lost sales. Since then, China has diversified its suppliers of agricultural goods like soybeans, buying much more from Brazil instead. This could make it easier to pivot away from the US.