Institute of Competitive Studies (ICS), Islamabad Prepared by Salahuddin:0308-1018685

The Escalatory Trends in The U.S.-China Trade War

Contents

Introduction .......................................................................................2

Recent Developments in the Trade War ..............................................2

Impacts of U.S.-China Trade War on the World ...................................3

Impacts on China and U.S. Economy ...................................................4

Conclusion .........................................................................................5

References .........................................................................................5
 Institute of Competitive Studies (ICS), Islamabad Prepared by Salahuddin:0308-1018685

Introduction
The trade war between the United States and China marks one of the most consequential
economic confrontations of the 21st century. It is not just a bilateral dispute; it’s a test of the
rules-based global trading order. Initiated under the Trump administration, the conflict was
triggered by longstanding grievances over intellectual property theft, trade imbalances, industrial
subsidies, and China's growing technological dominance. While economic friction between major
powers isn’t new, the aggressive use of tariffs, export controls, and investment bans signaled a
departure from decades of engagement and globalization. The U.S. approach, increasingly
bipartisan, reflects a strategic pivot — viewing China less as a trading partner and more as a rival
in economic, technological, and geopolitical terms. Beijing, for its part, sees the U.S. measures as
attempts to contain its rise. What began with a barrage of tariffs has evolved into a multi-
dimensional standoff involving tech bans, diplomatic friction, and efforts to "decouple" supply
chains. With both nations deeply embedded in the global economy, the fallout is affecting
everything from energy prices to AI innovation. Trade, once a bridge between the world’s two
largest economies, is now a battlefield. The consequences extend far beyond national borders,
reshaping alliances, investment strategies, and the future of globalization itself.

Recent Developments in the Trade War

The trade war has entered a new, more entrenched phase under the second Trump
administration. Tariffs covering nearly all Chinese imports remain in place, and in 2025, President
Trump imposed an additional 32 percent tariff on Taiwanese goods—excluding
semiconductors—while reinforcing barriers on Chinese technology sectors. The CHIPS and
Science Act, originally passed in 2022, has seen administrative overhaul with the creation of the
U.S. Investment Accelerator to boost domestic semiconductor output. Export controls on
advanced technologies, especially AI and chipmaking tools, have tightened further. The Biden-
era restrictions on U.S. investment in Chinese AI and biotech sectors remain largely intact. China,
in response, has filed a WTO complaint alleging unfair treatment, but with the U.S. continuing to
 Institute of Competitive Studies (ICS), Islamabad Prepared by Salahuddin:0308-1018685

block WTO judicial appointments, the arbitration body remains crippled. In a significant move,
the U.S. forced a sale deadline for TikTok’s Chinese ownership, though this has been delayed.
Meanwhile, China's own technological sector is showing resilience, as seen in the launch of a
homegrown AI model by startup DeepSeek, competing with U.S. tech leaders in cost and
efficiency. On the diplomatic front, ASEAN nations are being pulled in opposite directions, with
countries like Malaysia aligning with China while others remain cautious. The trade war is no
longer a temporary disruption—it has become structural, with both sides building long-term
strategies to reduce interdependence. With national security now intertwined with economic
policy, the trade war is shaping up to be the defining feature of U.S.-China relations for the
foreseeable future.

Impacts of U.S.-China Trade War on the World

The global fallout from the U.S.-China trade war has been significant, destabilizing supply chains,
raising costs, and forcing countries to reassess their economic alignments. Many economies,
particularly those heavily tied to either the U.S. or China, have been caught in the crossfire. Tariff
increases have driven up prices for intermediate goods, complicating manufacturing and export
strategies worldwide. In Southeast Asia, nations like Vietnam and Indonesia have benefited from
manufacturing shifts, as companies seek alternatives to China, but these gains are uneven and
don’t compensate for overall disruption. European Union countries have also raised concerns
over the spillover effects of U.S. export controls, particularly regarding semiconductors and AI
technologies that rely on shared innovation networks. Australia, balancing its alliance with the
U.S. and economic ties to China, is navigating a difficult path, delaying any decisive realignment
ahead of its May 2025 elections. The trade war has also triggered broader skepticism toward
multilateral institutions like the WTO, whose weakened dispute mechanisms have eroded trust
in the global trade system. Developing countries are particularly vulnerable, facing both
inflationary pressures and reduced export opportunities. Meanwhile, global tech standards are
fragmenting, with rival U.S. and Chinese platforms emerging in AI, digital payments, and telecom.
This fragmentation risks undermining global interoperability and innovation. Financial markets
remain volatile, with investors uncertain about long-term supply chain stability and the
regulatory environment for international business. The ripple effects also touch currency markets
 Institute of Competitive Studies (ICS), Islamabad Prepared by Salahuddin:0308-1018685

and sovereign debt, as shifts in capital flow reflect the strategic decoupling. In this climate, many
governments are prioritizing economic security over liberal trade, reversing decades of
globalization. With no clear end in sight, the U.S.-China trade war continues to reshape the global
economy in real time, forcing states, firms, and institutions to adapt to an increasingly
fragmented and uncertain world.

Impacts on China and U.S. Economy

For both China and the United States, the trade war has brought a mix of costs and strategic
recalibrations. The U.S. has seen inflationary pressures from tariffs, higher consumer prices, and
trade disruptions, particularly in agriculture and manufacturing. U.S. exports to China, once a
major growth area, have not returned to pre-trade war levels. At the same time, American efforts
to rebuild domestic manufacturing—particularly in semiconductors—have gained momentum
under bipartisan support. The CHIPS and Science Act and similar policies have sparked billions in
investment, but questions remain over sustainability, especially with Trump criticizing the
financing of “rich companies” and redirecting industrial policy efforts. Meanwhile, the U.S. trade
deficit with China, although reduced, remains large. China’s economy, on the other hand, has
been more visibly shaken. Foreign direct investment has slowed amid regulatory crackdowns,
export controls, and rising geopolitical risk. The yuan has faced downward pressure, and China’s
once-bulletproof role in global supply chains is being reassessed. Still, Beijing has responded with
urgency. The rise of domestic tech alternatives—like DeepSeek’s AI launch—signals a shift from
dependency to innovation. But the road ahead is bumpy. China is grappling with aging
demographics, property market troubles, and weak consumer demand. While state-driven
stimulus continues, uncertainty over market access and geopolitical tensions hampers business
confidence. On both sides, the decoupling is partial but real. Tech, investment, and even
educational exchanges are under scrutiny. Yet, complete separation seems unlikely—too many
U.S. firms still rely on Chinese markets, and Chinese firms still seek access to Western capital and
know-how. Ultimately, both economies are absorbing the shock while building parallel systems
to reduce vulnerability. This dual-track development is redefining what economic competition
looks like in an era of strategic rivalry.
 Institute of Competitive Studies (ICS), Islamabad Prepared by Salahuddin:0308-1018685

Conclusion
The U.S.-China trade war is no longer a short-term skirmish over tariffs—it has matured into a
long-haul contest with global implications. What began as a confrontation over trade imbalances
and IP theft has expanded into a broader struggle for economic and technological supremacy.
Each country is now deeply invested in reshaping its economic model to withstand external
pressure and gain strategic leverage. In the U.S., there's a renewed focus on industrial policy,
economic security, and supply chain resilience. In China, the emphasis is on self-reliance,
domestic innovation, and strategic realignment with regional allies. The WTO’s diminished role
and the erosion of global trade norms suggest a shift toward a more fragmented economic
landscape. For the world, this confrontation is not just about two superpowers—it’s about the
future of globalization, international law, and how economic power will be wielded in the 21st
century. The outcomes remain uncertain. While tariffs and restrictions have caused real pain,
they’ve also spurred investment, innovation, and policy overhaul. Both sides are betting on long-
term endurance rather than short-term wins. For policymakers and business leaders worldwide,
navigating this conflict requires a nuanced understanding of not just trade policy, but also tech
governance, security strategy, and global diplomacy. Whether this war settles into a stable rivalry
or spirals into deeper fragmentation will depend on how both nations manage their
competition—and how the rest of the world chooses to respond.

References
A Trade War With China Is a Very Bad Idea - The Atlantic
https://www.theatlantic.com/economy/archive/2025/04/trade-war-china-trump-tariffs/682500/

What would a US-China trade war do to the world economy?

https://www.bbc.com/news/articles/c4g2089vznzo

The Economic Impacts of the US-China Trade War

https://www.nber.org/system/files/working_papers/w29315/w29315.pdf

Trump Tariffs: The Economic Impact of the Trump Trade War

https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

US-China trade dispute

https://www.ft.com/us-china-trade-dispute