With President Donald Trump imposing tariffs exceeding 100% on Chinese goods imports, the specter of a full-scale trade war with China has become a stark reality.
China has vowed to “fight to the end” rather than yield to what it perceives as US coercion, promising to hike its own tariffs on American goods from 34% to 84% in retaliation.
But what would an all-out trade war between the world’s two largest economies actually mean for the rest of the world?
According to a report in BBC, the trade in goods between the two economic powerhouses amounted to approximately $585 billion (£429 billion) last year, representing a vital artery of the global economy.
While the US imported significantly more from China (440 billion) than China imported from America (145 billion), that imbalance resulted in a US trade deficit with China – the difference between imports and exports – of $295 billion in 2024.
This sizable deficit represents roughly 1% of the US economy.
However, this figure is notably less than the $1 trillion amount that Trump has repeatedly cited, highlighting a potential exaggeration.
A decade of shifting trade patterns
Trump initially imposed significant tariffs on China during his first term, policies that were maintained and expanded by his successor, Joe Biden.
These trade barriers have contributed to a decline in the share of goods the US imports from China, falling from 21% of America’s total imports in 2016 to 13% last year, indicating a gradual shift away from reliance on Chinese trade.
Re-routing trade: dodging tariffs through Southeast Asia
Yet analysts have noted that some Chinese goods exports to the US have been cleverly re-routed through countries in Southeast Asia to circumvent tariffs.
For example, the Trump administration imposed 30% tariffs on Chinese imported solar panels in 2018.
However, the US Commerce Department presented compelling evidence in 2023 that Chinese solar panel manufacturers had shifted their assembly operations to states such as Malaysia, Thailand, Cambodia, and Vietnam, before sending the finished products to the US from those countries, effectively evading the tariffs.
The new “reciprocal” Trump tariffs imposed on those countries will therefore push up the US price of a wide range of goods ultimately originating in China, illustrating the complex and far-reaching consequences of the trade war.
A tale of two economies: what they import from each other
In 2024, the largest category of goods exports from the US to China were soybeans – primarily used to feed China’s massive pig population, estimated at 440 million.
The US also exported pharmaceuticals and petroleum to China, highlighting the diverse nature of their trade relationship.
Going the other way, from China to the US, were large volumes of electronics, computers, and toys, reflecting China’s dominance in these manufacturing sectors.
A significant amount of batteries, crucial for electric vehicles, were also exported.
However, the single biggest category of US imports from China is smartphones, accounting for 9% of the total, highlighting its significance to American Consumers.
A large proportion of these smartphones are manufactured in China for Apple, a US-based multinational, showcasing the complex entanglement of the two economies.
The US tariffs on China have been one of the main contributors to the decline in the market value of Apple in recent weeks, with its share price falling by 20% over the past month, demonstrating the real-world impact of the trade dispute.
These imported items from China were already set to become considerably more expensive for Americans due to the existing 20% tariff imposed by the Trump administration.
Now that the tariff has surged to 104%, the impact could be five times greater, potentially leading to significantly higher prices for consumers.
New avenues for economic warfare
China has a pivotal role in refining many vital metals for industry, ranging from copper and lithium to rare earths, potentially providing leverage in the trade conflict.
Beijing could place obstacles in the way of these metals reaching the US, disrupting supply chains and harming US manufacturers.
This tactic has already been employed in the case of two materials called germanium and gallium, which are used by the military in thermal imaging and radar, signaling China’s willingness to weaponize its control over critical resources.
On the other side, the US could attempt to tighten the technological blockade on China started by Joe Biden by making it harder for China to import the kind of advanced microchips – which are vital for applications like artificial intelligence – it still can’t yet produce itself, further hindering China’s technological advancement.
Adding a further complication to the situation, Donald Trump’s trade advisor, Peter Navarro, has suggested this week that the US could pressure other countries, including Cambodia, Mexico, and Vietnam, not to trade with China if they want to continue to exporting to the US, seeking to isolate China economically.
Global repercussions: a slowdown in the world economy
The US and China together account for a substantial share of the global economy, estimated at around 43% this year, according to the International Monetary Fund.
This means that any slowdown in their growth would inevitably have significant global repercussions.
If they were to engage in an all-out trade war that slowed their growth down, or even pushed them into recession, that would likely harm other countries’ economies in the form of slower global growth.
Global investment would also likely suffer, creating further economic challenges.
China is the world’s biggest manufacturing nation and is producing far more than its population consumes domestically.
It is already running an almost $1 trillion goods surplus – meaning it is exporting more goods to the rest of the world than it imports.
Moreover, it is often producing those goods at below the true cost of production due to domestic subsidies and state financial support, like cheap loans, for favored firms, potentially distorting global markets. Steel is a prime example of this.
If Chinese products were unable to enter the US market, there is a risk that Chinese firms could seek to “dump” them abroad, flooding global markets with artificially cheap goods.
While that could be beneficial for some consumers in the short term, it could also undercut producers in other countries, threatening jobs and wages and leading to further economic instability.
The lobby group UK Steel has already warned of the danger of excess steel potentially being redirected to the UK market, underscoring the potential for this scenario.
In conclusion, the spillover impacts of an all-out China-US trade war would be felt globally, and most economists judge that the impact would be highly negative, potentially triggering a significant global economic downturn.
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