China–United States trade war

Based on Wikipedia: China–United States trade war

In 2018, the world's two largest economies went to war. Not with missiles or troops, but with tariffs—taxes on imported goods that made Chinese products more expensive for American buyers and American products more expensive for Chinese buyers. What started as a campaign promise became a years-long economic conflict that reshaped global trade, cost consumers billions, and by most accounts, achieved very little of what it set out to do.

The US-China trade war is less a single event and more a slow-motion collision between two fundamentally different economic systems. One side, the United States, operates on free-market principles where private companies largely decide what to make, where to sell it, and at what price. The other side, China, runs what economists call "state capitalism"—a hybrid system where the government plays an enormous role in directing economic activity, subsidizing favored industries, and sometimes requiring foreign companies to hand over their technological secrets as the price of admission to the world's largest consumer market.

This isn't a story with heroes and villains. It's a story about how two giants, each convinced of their own righteousness, stumbled into an economic quagmire that neither could easily escape.

How We Got Here: A Very Brief History of US-China Trade

For decades, American businesses dreamed of selling to China. One billion consumers! The logic seemed irresistible. In 2000, the United States passed the United States–China Relations Act, which paved the way for China to join the World Trade Organization (the WTO, the international body that sets rules for global trade) in 2001. This granted China "most favored nation" status—despite the name, it simply means being treated the same as other trading partners, not given special privileges.

Trade exploded. China became America's factory floor. Walk through any Walmart in 2005 and you'd find clothes, electronics, toys, and tools all stamped "Made in China." American consumers loved the low prices. American companies loved the even lower manufacturing costs. And China loved the jobs.

But there was a catch. Actually, several catches.

The trade flowed heavily in one direction. Americans bought far more Chinese goods than Chinese bought American goods. By 2017, this gap—economists call it a "trade deficit"—reached $375.6 billion. That means Americans spent $375.6 billion more on Chinese products than Chinese spent on American products in a single year.

Why such a lopsided relationship? Economists point to different explanations. Some focus on savings rates: Chinese households sock away more than 30% of their income on average, while American households save around 7%. When you save less, you spend more—including on imports. Others point to structural differences: America consumes more than it produces, while China produces more than it consumes. The math practically guarantees a deficit.

But there was something else happening that worried American policymakers far more than the deficit itself.

The Technology Problem

Imagine you've spent twenty years and two billion dollars developing a revolutionary battery technology. You want to sell it in China, the world's largest market for electric vehicles. But to enter that market, Chinese officials tell you that you need a local partner—a Chinese company that will have access to your designs, your manufacturing processes, your secrets.

This was the "forced technology transfer" that American companies complained about for years. It wasn't illegal, exactly. Nobody held a gun to anyone's head. But if you wanted access to Chinese consumers, you often had to share your crown jewels with potential competitors.

The Chinese government denied that this was mandatory. They pointed out that many American companies entered China without such requirements. But surveys told a different story: over half of American businesses operating in China reported that protecting their intellectual property was a significant concern.

Then there was outright theft. American officials accused Chinese hackers of stealing trade secrets from American companies—everything from jet engine designs to pharmaceutical formulas to Hollywood scripts. The dollar amounts were staggering: some estimates put the annual cost to the American economy at $225 billion to $600 billion, though these figures were hotly disputed.

Meanwhile, American manufacturing was hurting. Economists documented what they called the "China shock"—the accelerated loss of US manufacturing jobs after China joined the WTO. One study estimated that trade with China cost about 2.7 million American jobs between 2001 and 2011.

Were those jobs "lost" or simply moved? Economists debate this endlessly. Consumers benefited from cheaper goods. Some industries thrived on exports to China. And automation, not trade, caused most manufacturing job losses. But for workers in Ohio or Pennsylvania who watched their factories close, the distinction felt academic.

Enter Trump

Donald Trump had been complaining about trade deficits since the 1980s—originally about Japan, which was then America's main economic rival. He took out full-page newspaper ads arguing that America was being "ripped off" by its trading partners. By 2016, China had replaced Japan as his primary target.

His message was simple: China was cheating, American politicians were too weak or too stupid to stop them, and he alone could fix it.

It resonated. Trump won the presidency in part by carrying rust belt states where manufacturing decline hit hardest.

Once in office, he moved quickly. In August 2017, he directed the Office of the United States Trade Representative to investigate Chinese trade practices. The resulting report, released in March 2018, made the case for action. Trump ordered tariffs on Chinese products—essentially a tax that made them more expensive for American buyers.

Peter Navarro, Trump's trade advisor, was a driving force. A Harvard-trained economist with an unusually hawkish view on China, Navarro had written books and produced documentaries warning about the Chinese economic threat. He set up shop in Trump Tower during the campaign and later wrote that he urged Trump to go "full Sudden Zen"—essentially, to launch an all-out trade war.

"Trade wars are good, and easy to win," Trump declared in March 2018.

He would later revise that assessment.

The Tariff Spiral

Tariffs work like this: the US government tells importers that they must pay an extra percentage—say, 25%—on top of the price of Chinese goods. This makes Chinese products more expensive, theoretically encouraging Americans to buy American-made alternatives instead.

But here's what many people don't realize: Chinese companies don't pay these tariffs. American importers do. And they typically pass those costs along to American consumers and businesses.

When Trump imposed tariffs on Chinese goods, China retaliated with tariffs on American goods. American farmers got hit particularly hard. Soybeans, which had been a major export to China, suddenly faced a 25% tariff that made them far less competitive against Brazilian soybeans.

The pattern repeated throughout 2018 and 2019. Each round of American tariffs triggered Chinese retaliation. Each Chinese retaliation triggered more American tariffs. By late 2019, the United States had imposed tariffs on roughly $360 billion worth of Chinese imports.

Meanwhile, Trump kept claiming that China was paying for everything. This was economically illiterate. American importers paid the tariffs. American consumers paid higher prices. American manufacturers who depended on Chinese components saw their costs rise. American farmers lost markets they had spent decades building.

What Were They Fighting About, Exactly?

The American complaints against China boiled down to several key issues:

The trade deficit. America buys more from China than China buys from America. Trump saw this as proof that America was losing. Most economists disagreed—trade deficits aren't inherently bad, and they're mostly driven by macroeconomic factors like savings rates, not trade policy. You can't fix a deficit by punishing imports without changing the underlying economic dynamics that create it.

Forced technology transfer. American companies felt pressured to share their innovations with Chinese partners. This was harder to dismiss. Even if not technically illegal, it put American companies in an impossible position.

Intellectual property theft. Chinese hackers and copycats allegedly stole American innovations. Evidence for this was substantial, though the exact dollar figures remained disputed.

Subsidies and state capitalism. The Chinese government heavily subsidized certain industries—steel, aluminum, solar panels, electric vehicles—allowing them to undercut competitors. American and European producers complained that they couldn't compete against government-backed rivals.

Market access. American companies faced restrictions in China that Chinese companies didn't face in America. This asymmetry seemed unfair.

Some of these complaints were legitimate. Some were oversimplified. And some revealed a deeper anxiety: China was catching up, and might soon overtake the United States as the world's leading economic power.

The Chinese Perspective

Beijing saw things very differently.

From China's perspective, the trade war was never really about tariffs or intellectual property. It was about containment—America trying to prevent China's rise.

Chinese officials pointed out that their economic development followed a path that other countries, including the United States itself, had taken during their industrialization. Protecting infant industries, subsidizing strategic sectors, acquiring foreign technology—America did all of this in the 19th century. So did Japan and South Korea in the 20th. Why was it suddenly cheating when China did it?

They also rejected the technology theft narrative, at least partially. Larry Summers, a former US Treasury Secretary and no friend of Chinese economic policy, acknowledged that Chinese leadership in some technological fields resulted from "huge government investment in basic science" rather than theft. China was spending enormous sums on research and development, building world-class universities, and graduating more engineers than any other country on Earth.

Were they also stealing technology? Probably some. But dismissing all Chinese innovation as stolen goods was both inaccurate and counterproductive.

In response to American pressure, China did make some concessions. The National People's Congress passed a new foreign investment law in 2019 that explicitly prohibited forced technology transfer and promised stronger protection for foreign intellectual property. Whether this would be enforced remained to be seen.

The "Phase One" Deal and Covid's Disruption

By late 2019, both sides were feeling the pain. Negotiations intensified. In January 2020, the United States and China signed what they called a "phase one" trade agreement.

Under this deal, China committed to purchasing an additional $200 billion worth of American goods and services over two years. In exchange, the United States agreed to reduce some tariffs and pause new ones.

It was a modest deal that left most of the underlying issues unresolved. But it was something.

Then the world changed.

Within weeks of the signing, Covid-19 emerged from Wuhan, China. Global trade collapsed. Supply chains broke down. Economies cratered. Any chance of China meeting its purchasing commitments evaporated.

The pandemic also intensified US-China tensions in ways that went far beyond trade. Blame-shifting, vaccine nationalism, and mutual recriminations created an atmosphere even more hostile than before.

The Biden Interlude

When Joe Biden took office in January 2021, many expected a reset. Biden had criticized Trump's tariffs as reckless and ineffective.

But the tariffs stayed.

Despite calling them a failure, Biden kept virtually all of Trump's China tariffs in place. In fact, he added new ones—on electric vehicles, solar panels, batteries, and other goods. The effective tariff rate on Chinese goods, which had been between 0% and 5% before the trade war, climbed to around 20% and stayed there throughout Biden's term.

Why? Partly politics—appearing "tough on China" had become bipartisan orthodoxy. Partly economics—removing tariffs might look like surrender without getting anything in return. And partly strategy—the Biden administration was trying to slow China's advancement in key technologies like semiconductors and artificial intelligence.

The trade war had become permanent.

Trump Returns: Escalation to Extremes

During the 2024 presidential campaign, Trump proposed a 60% tariff on all Chinese goods. This was far beyond anything previously implemented.

When he returned to office in 2025, he followed through—and then some.

A series of escalating tariffs pushed rates to extraordinary levels. By early 2025, the United States was imposing a 145% tariff on Chinese goods. China retaliated with a 125% tariff on American goods.

To put this in perspective: a 145% tariff means that a product that costs $100 to import from China would cost $245 after the tariff is paid. This isn't a trade barrier. It's a trade wall.

Economists forecast that these measures would reduce global merchandise trade by 0.2%—a significant hit to an integrated world economy.

Both countries exempted certain items from the most extreme tariffs, acknowledging that some trade was too important to sever completely. Negotiations continued, though neither side showed much willingness to back down.

Who Won?

The short answer: nobody.

By the end of Trump's first term, American media widely characterized the trade war as a failure for the United States. The trade deficit with China hadn't shrunk significantly. Manufacturing jobs hadn't returned in meaningful numbers. American farmers and consumers had borne billions in costs. China hadn't fundamentally changed its economic system.

China didn't exactly win either. Growth slowed. Foreign investment became more cautious. The relationship with its largest trading partner was permanently damaged. And the technology decoupling that American policy encouraged pushed China to develop its own capabilities faster—potentially creating an even more formidable competitor in the long run.

Nearly all economists surveyed by the Associated Press and Reuters said Trump's tariffs did more harm than good to the American economy. Two Congressional Research Service reports concluded that the long-run effect of trade on the economy was positive, and that trying to fix trade deficits without addressing underlying macroeconomic conditions would likely backfire.

But trade wars aren't just about economics. They're about power, politics, and national psychology.

The Deeper Current: "Overcapacity" and "Involution"

Beneath the headlines about tariffs lies a more fundamental tension. China has built extraordinary manufacturing capacity—more than it needs for domestic consumption, more than the world can easily absorb. This "overcapacity" means Chinese factories can flood global markets with cheap goods, undercutting competitors everywhere.

In 2024, Chinese policymakers began using a different word: "involution." Originally an academic term describing societies that grow more complex without actually progressing, it now describes the brutal competition among Chinese firms fighting for share in oversupplied markets. Prices collapse. Profits vanish. Nobody wins except consumers—temporarily.

Whether you call it overcapacity or involution, the result is the same: Chinese manufacturing might that both enables cheap goods and threatens competitors. It's not going away, regardless of tariffs.

What Does This Mean?

The US-China trade war reveals something important about our globalized world: it's easier to entangle economies than to disentangle them.

For forty years, the United States encouraged economic integration with China. American companies built supply chains that depended on Chinese factories. American consumers grew accustomed to cheap Chinese goods. American farmers sold billions in crops to Chinese buyers.

Unwinding that integration is extraordinarily difficult—and extraordinarily painful. Tariffs don't bring factories home. They raise costs, disrupt supply chains, and invite retaliation. The companies that left China often moved to Vietnam or Mexico, not Ohio or Michigan.

The trade war also shows the limits of economic policy as a tool of geopolitical competition. You can't tariff your way to victory against a determined rival. China is too big, too integrated into global supply chains, and too willing to absorb pain.

Perhaps most importantly, the trade war demonstrates how quickly economic relationships can deteriorate—and how hard they are to repair. Trust, once broken, takes decades to rebuild. Companies that restructured supply chains away from China won't easily return, regardless of what trade deals get signed.

The world's two largest economies are now locked in what Chinese officials call "competition" and American officials increasingly call "rivalry." The trade war may pause, may escalate, may find temporary truces. But the underlying tensions—over technology, over influence, over the shape of the 21st-century economy—aren't going away.

The trade war, in other words, is less a war than a new normal.