By Gustavo de Arístegui.
June 13, 2025.
This analysis delineates the key issues of the trade war between the United States and China, examining the strategies employed by both nations, the outcomes realized, and the inherent complexities of their economic interdependence.
1. Initial Miscalculation in the U.S.-China Trade War
Upon initiating a global trade war, President Donald Trump operated under the premise that China’s economic vulnerabilities, such as its real estate crisis and perceived governmental mismanagement, would compel a swift concession. The strategy aimed to secure favorable trade terms for the United States. However, the resilience of the Chinese economy and its capacity to withstand economic pressures proved considerably stronger than anticipated in Washington. As economist Paul Krugman noted, “the notion that China would collapse under tariff pressure ignored the complexity of its economy and its government’s ability to mobilize domestic resources” (Krugman, The New York Times, 2019). This underestimation undermined U.S. expectations of a rapid and decisive victory.
2. Recent U.S.-China Trade Negotiations
A recent summit in London culminated in a new trade agreement, the terms of which largely mirrored a prior pact reached in Geneva on May 12, whose implementation China had delayed. The modest success of these negotiations was driven by a mutual recognition of the economic interdependence binding both powers, as well as the pressing need to alleviate domestic economic strain in both countries. As International Monetary Fund (IMF) Managing Director Kristalina Georgieva expressed, “cooperation and dialogue are essential to avoid a ‘mutually impoverishing’ scenario in global trade” (Georgieva, Official IMF Statement, 2023), highlighting the rationale behind these pragmatic compromises.
3. Concessions in Export Controls
Recent negotiations have yielded significant concessions concerning export controls from both sides:
● China: Committed to easing restrictions on the export of rare earth minerals and magnets. These materials are crucial for strategic U.S. industries, including electric vehicle manufacturing and advanced military equipment. China exerts near-monopolistic dominance in global rare earth production, controlling approximately 70% of mining and 90% of processing. Its prior restrictions had generated significant disruptions in U.S. supply chains, causing concern at the Pentagon. Nevertheless, the true effectiveness of this relaxation in the long term remains uncertain and will depend on transparent and consistent implementation.
● U.S.: Agreed to reverse a series of technological and commercial restrictions. These include the removal of a prohibition preventing U.S. companies from utilizing artificial intelligence chips produced by Huawei, the relaxation of limitations on the sale of chip design software to Chinese firms, and a review of visa restrictions for Chinese students enrolled in certain technological and scientific fields. These concessions demonstrate the United States’ willingness to ease tensions in specific sectors, though national security concerns and intellectual property protection remain central points of focus.
4. China’s Economic and Diplomatic Resilience
Despite confronting considerable internal challenges, such as a persistent real estate crisis, rising youth unemployment, and concerns related to local government debt, China’s response to U.S. tariffs was not one of weakness but rather of strengthening nationalism. This internal mobilization bolstered the Chinese government’s resolve to resist external pressure.
Diplomatically, China has demonstrated remarkable agility. It has reinforced its economic and political ties with Southeast Asia (including nations like Vietnam, Cambodia, and Malaysia) and deepened its relationships with Europe. A clear example is the rapprochement for the acquisition of up to 500 Airbus aircraft, a deal that might have come at the expense of Boeing due to U.S. tariffs. This move illustrates China’s strategy to diversify its trade relations and seek alternatives to U.S. suppliers.
In contrast to President Trump, who faced constant domestic market pressure and electoral cycles, Xi Jinping’s authoritarian control has afforded China a greater capacity to absorb and manage the economic impacts of the trade war with fewer internal constraints. As Graham Allison observes in his analysis of the “Thucydides Trap,” “China’s centralized government structure allows it a long-term strategic flexibility not always available to Western democracies” (Allison, Destined for War, 2017).
5. U.S. Strategic Errors
The aggressive tariff strategy adopted by the Trump administration not only aimed to pressure China but also had the effect of alienating key allies. Relations with Europe became strained due to the imposition of tariffs on European products and a perceived pro-Russian stance unfavorable to transatlantic interests. This “America First” policy generated significant volatility in global financial markets, escalating fears of a potential economic recession.
The 90-day pause in global tariffs, prompted by bond market concerns, was a clear signal of a retreat from initial hardline policies, demonstrating that even an economy as large as the U.S. is not immune to the repercussions of a protracted trade war. The World Bank, in its economic forecasts, explicitly warned of a “sharp slowdown in global economic growth” as a direct result of the trade war (World Bank, Global Economic Prospects, 2020), underscoring the magnitude of these strategic errors.
6. Challenges of Decoupling
The Trump administration articulated the objective of decoupling the U.S. economy from China’s, seeking to repatriate manufacturing and pressuring countries like Vietnam to exclude China from their supply chains. However, economic reality presents a far more complex picture. The deep economic ties between the U.S. and China, often described as “Chimerica” by historians like Niall Ferguson, form an intricate web of interdependence.
China’s role as a global hub for skilled labor and its evolution into an innovation-driven economy make decoupling a colossal task. Furthermore, China’s reliance on U.S. Treasury holdings has significantly decreased, falling from $1.3 trillion in 2011 to $759 billion in the past year, thereby reducing U.S. financial leverage over Beijing. As trade analyst Chad Bown contends, “total decoupling is a fantasy, given the degree of integration of global supply chains and China’s specialization” (Bown, Peterson Institute for International Economics, 2022). This process is intrinsically complex and uncertain, with potentially severe economic consequences for both parties.
7. Path Forward
While recent negotiations in London have established a more constructive tone and eased some immediate tensions, a long-term resolution to the trade war will necessitate a period of intensive and continuous negotiations. For the United States, the path forward must involve a more strategic and less confrontational approach. It is imperative to stabilize financial markets, an objective achievable only with greater predictability and less volatility in trade policies.
Furthermore, repairing traditional alliances with Europe and other trade partners is fundamental to building a more cohesive and effective united front in future negotiations. Finally, the U.S. must learn to navigate its economic interdependence with China more effectively, recognizing that a complete decoupling is unrealistic and that strategic coexistence is the only sustainable path to ensuring global economic stability.
Concluding Analysis
The trade war initiated by the Trump administration as a strategic overreach that significantly underestimated China’s economic resilience and diplomatic agility. Simultaneously, it highlights the mutual economic pain inflicted upon both nations as the primary catalyst that has propelled them towards compromise. Recent concessions, though modest, reflect pragmatic steps towards de-escalation but also underscore the inherent difficulty of decoupling such deeply integrated economies.
The United States faces considerable challenges stemming from the alienation of some of its allies and domestic market pressures. In contrast, China has adeptly capitalized on its strategic assets, strengthened its global partnerships, and leveraged its centralized government structure to maintain its advantage and resist pressure. The principal lesson from this trade saga is that, in a globalized world, economic interconnectedness renders unilateral solutions costly, and cooperation, however challenging, is indispensable.