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A War of Attrition: The US-China Economic Standoff and Its Global Fallout 

By Lakshmi Karlekar & HM Greeshma Apr21,2025 #China #Donald Trump #USA
  • Trump’s reciprocal tariffs on Chinese imports have increased from 54% to 104%, then to 125% and now to 145% in just the last week in April 2025.
  • The confrontation creates a long rift that will not only hamper these two intricately linked economies but also intensify their geopolitical rivalry.
  • This protracted trade war could be especially detrimental to China’s small businesses, which are the backbone of the country’s economy.
  • China has vowed to retaliate against Trump’s ‘unilateral bullying’ tariffs, and the tense US-China relationship has turned into a trade war.

A series of executive orders signed by US President Donald Trump to impose reciprocal tariffs is a development that hints at a larger phenomenon of rising protectionism in the era of globalisation and brings forth the necessity to reflect on a much wider impact of the imposition of tariffs, which sometimes leads to trade wars as well. While tariffs carry the baggage of disrupting the free flow of goods across countries, they also lead to significant changes in exchange rate systems, further leading to inflation in national economies. Thereby, the regulation of tariffs plays a vital role in ensuring free and fair trade. The WTO has been responsible as a legitimate entity in the regulation of Tariffs. But various factors, including the non-functional status of the appellate body, have daunted the efficiency of the organisation. China and the United States, two of the world’s most powerful geopolitical nations with closely intertwined economies, are engaged in a rapidly worsening trade war that could have catastrophic consequences for both countries and send shockwaves around the world.

Trump’s reciprocal tariffs on Chinese imports have increased from 54% to 104%, then to 125% and now to 145% in just the last week in April 2025. These figures are in addition to levies that were already in place before the President’s second term. Beijing said it was prepared to fight to “the end” in response to Trump’s warning not to retaliate against a previous 34% tariff on top of a first round of duties. First, China has responded in kind by increasing additional retaliatory duties to 84% on all US imports. However, now Chinese President Xi Jinping retaliated by raising duties on US goods stepping into China to 125%, following Trump’s most recent uptick in the stakes, when he confirmed that tariffs on Chinese goods would now reach 145%. China, according to its Premier Xi Jinping, stated that he was “not afraid” and is ready for a tough fight. 

China has vowed to retaliate against Trump’s “unilateral bullying” tariffs, and the tense US-China relationship has turned into a trade war. As the trade war with China intensifies, US consumer sentiment reaches 1952 levels. The United States is the top export destination for China, and China is currently one of the biggest export markets for American goods and services. Although this trade has increased profits for American corporations and reduced prices for American consumers, there are costs associated with it. 

Since 2001, the US and China have been members of the WTO. According to WTO Director-General Ngozi Okonjo-Iweala, the tensions between the US and China “pose a significant risk of a sharp contraction in bilateral trade.” According to the US Commerce Department’s Bureau of Economic Analysis, Beijing’s surplus of trade with the US last year totalled $295.4 billion, which has long irked Trump. According to Beijing’s customs data, Chinese exports to the United States amounted to over $500 billion in sales last year, or 16.4% of the nation’s total exports. Furthermore, according to the US Trade Representative’s office, China imported $143.5 billion worth of goods from the US in 2024.

Trump abruptly announced on 9th April that all of the “reciprocal” tariffs he had enacted in the first week of April would be suspended for 90 days. However, he left out China, which has raised a tit-for-tat competition that has left the two superpowers in a sour standoff.  On April 10, Trump emphasised that his rapport with Xi would be the deciding factor. During a Cabinet meeting, he stated, “He has been a friend of mine for a long time, in a true sense.” During his first term, Trump frequently recalls with nostalgia a visit from Xi to his Mar-a-Lago resort, where the two ate “the most beautiful piece of chocolate cake that you’ve ever seen” and he told his astonished guest about the military strikes he had just ordered in Syria. Cake diplomacy is therefore unlikely to occur during Trump’s second term. 

Furthermore, on 14th April, following Trump’s announcement of an exemption for smartphones, laptops, and other consumer electronics. China’s commerce ministry recently urged the US to “completely cancel” its reciprocal tariffs. “We urge the US to take a big step to correct its mistakes, completely cancel the wrong practice of ‘reciprocal tariffs’ and return to the right path of mutual respect”, a spokesperson for the Chinese ministry said.  Beijing has publicly stoked intense nationalism in response to its retaliation, which is a tactic it has been covertly developing for over four years since Trump’s last term. Maybe it will work and China will jump at the chance to join the discussion, not wanting to destroy an economy that no longer produces jaw-dropping growth figures. Beijing doesn’t want to push things too far, according to many Chinese experts, any more than Trump does. Both sides may be forced to retreat due to the possible negative effects of a full-scale trade war.

It’s not Xi’s style to be chummy. China favours the use of arduous, lower-level formal diplomacy for negotiations. Unlike Trump’s preferred scenario of big men gathering in a room and thrashing it out, leader meetings are heavily scripted. Since Xi Jinping is not a negotiator,  rather, the deal is negotiated at the working level by bureaucrats and functionaries. Zongyuan Zoe Liu, a senior fellow for China Studies at the Council on Foreign Relations, states that  “Even though there may still be a desire to de-escalate in China, I do see some short-term logistical challenges from that perspective.” The current arrangement in the US has been that low-cost Chinese goods have severely damaged US industries, ranging from North Carolina furniture manufacturing to the Rust Belt steel industry. Furthermore, the US’s long-standing justification for its China policy—that economic growth would unavoidably weaken Beijing’s communist rulers—did not work out. China hawks in Washington now contend that the US’s addiction to low-cost consumer goods effectively created its adversary, a superpower of the twenty-first century.

It’s reasonable to wonder if Trump has a plan and how he envisions the outcome, given that he started this possible apocalypse. Trump is improvising as usual,  as there was no real pattern to his startling increase in tariffs on China this week. Like a real estate shark, he is pushing the stakes to unaffordable heights in an attempt to gain leverage. It’s the most recent example of Trump’s “madman theory,” in which he creates the most bizarre situations in an attempt to frighten his rivals. This is the most significant setback in a turbulent week since the US president unveiled his “Liberation Day” tariffs in the White House Rose Garden, given the enormous amount of ‘personal and political capital’ Trump has now utilised in the confrontation with Xi. 

It is observed that the close ties between the US and China would act as a buffer against armed conflict. Vice President of the US, JD Vance, made fun of China last week when he criticised previous US trade policies. Vance claimed that to purchase the goods that those Chinese peasants produce, we borrow money from them. That is not a formula for financial success. It’s not a recipe for good jobs in the United States of America, nor is it a recipe for low prices,” as stated to “Fox & Friends.” Additionally, former Treasury Secretary Janet Yellen told on CNN International that “we’re now in a huge (trade) war with China, and the tariffs that have been imposed on China are what I would call prohibitive. They will have a significant effect on both the US economy and the world economy. Nobody can predict the future of these policies.”

This protracted trade war could be especially detrimental to China’s small businesses, which are the backbone of the country’s economy. There may be an increase in unemployment, which is always a worry for a country that is fixated on containing unrest. Western observers frequently overlook the fact that, despite repressing dissent, China’s authoritarian system has internal politics of its own that its leaders cannot overlook. The director of the University of California, San Diego’s 21st Century China Centre, Victor Shih, warned that the magnitude of the tariffs could cause “millions of people to become unemployed” and a “wave of bankruptcy” throughout China. In the meantime, he said, US exports to China might “go close to zero.”

The topic of debate now shifts to decoupling, or the process of disentangling the economies of China and the United States, the two superpowers on opposing sides of the most dangerous geopolitical rivalry in the world. The above dual-axis chart can illustrate how US tariffs raised import costs while reducing trade volumes(25-30%), influencing exchange rates through trade deficits, inflation, and capital flows. Coercing China, however, might backfire because of its enormous economic might and its sensitivity to slights from Western nations that it perceives as attempting to impede its rise. After years of xenophobic policies and propaganda meant to overthrow the United States, the people of China are unlikely to react favourably to threats. Meanwhile, there are many hints in China’s rhetoric that the US is attempting to destroy its political and economic structure. For example, Liu Pengyu, the spokesperson for China’s embassy in Washington, denounced US tariffs on Tuesday as an infringement of China’s “legitimate rights” and an “abuse.”

Thereby, the global trade has been disrupted by the US-China trade war, which streamlines exports from South Korea, Japan, and Germany because of waning Chinese demand. Supply chain changes are beneficial for emerging markets like Vietnam. Global exchange rates are affected by China’s currency devaluation, and the EU and ASEAN economies incur higher costs as a result of increased US tariffs, which raises the risk of inflation. At the same time, American companies may be forced to look for other suppliers as a result of the U.S. tariffs placed on Chinese imports, which would help Indian manufacturers. However, this could also create an environment of tensions and uncertainties in International trade that lowers investor confidence, leading to an adverse effect on the economy. The confrontation creates a long rift that will not only hamper these two intricately linked economies but also intensify their geopolitical rivalry.

References 

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By Lakshmi Karlekar & HM Greeshma

Lakshmi Karlekar is a PhD Research Fellow at the Department of International Relations, Political Science and History, CHRIST (Deemed to be) University, Bengaluru. H.M. Greeshma is a BA (Hons) student in History and Political Science at the same department. Views expressed are the authors’ own.  

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