FT Edit Subscription Service Launch

The U.S.-China Trade War Enters a New Phase

The trade conflict between the United States and China has evolved considerably since its origins in the first Trump administration, but recent developments signal a fresh escalation with significant consequences for global supply chains, financial markets, and the geopolitical balance of power. Tariffs that were once targeted at specific industrial sectors have expanded into a broad economic confrontation touching everything from semiconductors and electric vehicles to agricultural commodities and rare earth minerals.

The Biden administration largely kept the tariffs inherited from the Trump era intact while layering on new restrictions, particularly around advanced chip technology and semiconductor manufacturing equipment. The return of Donald Trump to the White House accelerated this trajectory dramatically, with tariff rates on Chinese goods climbing to levels not seen in the modern era of globalized trade. Rates on some categories of Chinese imports have reached triple digits, effectively functioning as import bans rather than simple revenue-raising measures.

China has responded with its own countermeasures, targeting American agricultural exports, restricting the outflow of critical minerals used in battery production and defense applications, and placing major U.S. companies on so-called unreliable entity lists. Beijing has also used export controls on gallium, germanium, and graphite — materials in which China holds a dominant global market position — as leverage in the broader standoff.

Supply Chain Disruption and Corporate Repositioning

For multinational corporations, the prolonged tariff conflict has forced a fundamental rethinking of sourcing and manufacturing strategies that had been optimized over decades for a world of relatively free trade. The concept of "China plus one" — maintaining Chinese manufacturing while hedging with factories in Vietnam, India, Mexico, or Indonesia — has given way in many industries to more aggressive diversification or outright decoupling.

Apple, which assembles the vast majority of its iPhones in China through partners like Foxconn and Pegatron, has accelerated its push into India, where production of flagship devices has ramped up meaningfully. Nike, which long relied on Chinese factories for a significant share of its footwear, has shifted volumes toward Vietnam and Indonesia. Yet complete decoupling remains elusive for most companies: Chinese suppliers remain unmatched in scale, precision, and the density of their industrial ecosystems, and alternatives built in Southeast Asia or South Asia often still depend on Chinese components and materials.

The auto industry faces a particularly acute version of this dilemma. Chinese electric vehicle manufacturers such as BYD have achieved cost structures that Western rivals cannot currently match, in part due to Chinese state subsidies and deep domestic supply chains for battery materials. The European Union imposed additional tariffs on Chinese EVs in late 2024, following the U.S., which had already raised tariffs on Chinese electric vehicles to 100 percent. Yet these defensive measures have not resolved the underlying competitive gap — they have simply delayed the reckoning while Western automakers scramble to reduce costs.

Financial Markets and the Dollar's Role

The trade war's financial dimensions add another layer of complexity. Periods of escalation have repeatedly rattled global equity markets, with export-heavy industries and technology companies most exposed to the volatility. The uncertainty around tariff policy has also created challenges for corporate planning: capital expenditure decisions that depend on knowing the cost of imported components or the accessibility of foreign markets become fraught when policy can shift dramatically within weeks.

There is also a longer-run debate about whether sustained trade conflict accelerates the erosion of the U.S. dollar's dominance in global commerce. China has pushed for more trade to be settled in renminbi, and a growing number of bilateral agreements — particularly in energy and commodities — have moved away from dollar denomination. The dollar's share of global foreign exchange reserves, while still commanding at roughly 58 percent, has edged lower over the past decade. Most economists regard a dramatic displacement of the dollar as a distant or unlikely scenario, but the directional trend is being watched carefully by central banks and sovereign wealth funds.

Treasury markets have also come under scrutiny. China remains one of the largest foreign holders of U.S. Treasury securities, though its holdings have declined from a peak of over $1.3 trillion. The possibility that Beijing could use its Treasury position as a financial weapon has been raised repeatedly, though most analysts argue that doing so would impose severe costs on China itself, limiting its utility as a coercive tool.

What Comes Next — and Why It Matters

The deeper tension underlying the U.S.-China trade conflict is not simply about tariffs or bilateral trade deficits — it is about which country will dominate the industries of the future. Semiconductors, artificial intelligence, quantum computing, clean energy technology, and biotechnology are all sectors where both Washington and Beijing have declared strategic priority, and where government industrial policy has become as important as market competition.

The U.S. CHIPS and Science Act, which directed roughly $52 billion toward domestic semiconductor manufacturing and research, represents one of the most ambitious pieces of industrial policy in American history. Taiwan Semiconductor Manufacturing Company, Samsung, and Intel have all committed to building advanced fabrication facilities in the United States, though timelines have slipped and costs have run higher than projected. Meanwhile, China has poured hundreds of billions of dollars into its own semiconductor ecosystem in an effort to reduce dependence on foreign chips, with companies like SMIC making genuine if incremental progress toward more advanced nodes.

The outcome of this technological competition will shape not just economic outcomes but the military balance of power for decades to come, since advanced semiconductors underpin modern weapons systems, surveillance infrastructure, and communications networks. That is why officials in Washington and Beijing treat what might superficially appear to be trade disputes as matters of national security — because, increasingly, they are. The world's two largest economies appear locked into a competitive dynamic that neither side has a clear strategy to escape, and that the rest of the world must navigate with growing urgency.