Manish Tewari | Stop the United States – China’s trade war, management interdependence
In a major escalation of the trade offensive, the U.S. import tariffs on tariffs reached huge tariffs, with the highest rate reaching a large amount of China’s imports, and tensions in the ongoing U.S.-China trade war have sharply exacerbated the tension.
The Trump administration has introduced the move as a “necessary reset” to correct long-standing trade imbalances and curb what Washington calls unfair Chinese economic practices.
In sharp contrast, the United States has also announced a 90-day suspension of mutual tariffs on many other countries, with China being the only exception. This dual-track strategy appears to be aimed at economically isolating Beijing while providing relief to allies and strategic partners to align them with the broader geo-economic goals of the United States.
However, the radiation is far beyond Washington and Beijing. Global markets are in turmoil, supply chains are under fresh pressure, and trade flows are being damaged, just as the world economy strives to restore balance after the long-term shadow of the pandemic.
Read the Trade Chessboard: The latest tariff rate hikes are rooted in structural tensions that have long plagued U.S.-China trade relations. In 2018, the growth model led by China’s trade deficit swelled to $418 billion, driven by Beijing’s export sales-led growth model, marked by subsidies, state-backed credit and industrial supercapacity, which is even more complex by the U.S. chronic household savings rate. Even landmark efforts like the first phase of 2020 transactions cannot achieve lasting resolutions.
Beijing has responded substantively, matching Washington’s tariffs with the same responsibilities as U.S. exports, targeting key sectors such as agriculture, energy and high-end manufacturing. Meanwhile, the United States is scrutinizing third countries such as Vietnam and Cambodia, suspecting that they are the relocation hubs for Chinese goods.
In this high-stakes game, Washington’s 90-day tariff probation on strategic partners in India, Japan and select EU countries has opened new diplomatic and trade paths. India has formal negotiations with the United States to reach a potential trade agreement.
Growth risks, price surges and market troubles: economic aftershocks are already visible. The International Monetary Fund (IMF) warns that further upgrades in global GDP could drop by 0.5 percentage points in 2025, totaling billions of dollars in output. This warning comes at the moment when global growth remains vulnerable, investment sluggish and inflationary pressures persist.
The direct result is a shift in inflation dynamics. Soaring demand in these regions could trigger a price surge as U.S. companies move from Chinese suppliers to alternatives to Southeast Asia and Latin America. Currency volatility has increased fuel from the fire, especially the expected weakening of the Chinese yuan, which could increase the cost of global dollar imports.
The financial markets were also rattled. The trade policy uncertainty index has peaked, reflecting growing investor uneasiness. Past plots provide a cautionary tale; previous trade war cycles weakened investment in capital-intensive sectors such as semiconductors, automobiles and electronics. The current round of risks will have a similar indifference effect, just when the world economy can’t afford it.
The reality behind “decoupling” from China: The lasting impact of deepening the rift is to accelerate the reconfiguration of global supply chains. Multinational corporations are increasingly adopting the “China Plus One” strategy, shifting some of their operations to countries such as Vietnam, Thailand, Malaysia, Indonesia and Mexico to diversify risks. Unfortunately, India cannot take advantage of this paradigm of multinational corporations due to policy instability and uncertainty.
However, the concept of complete economic decoupling is more than reality. China remains deeply embedded in global value chains, especially in high-tech fields such as semiconductors, advanced electronics and precise components. Eventually the conference may move elsewhere, but key intermediate goods continue to originate from Chinese factories. This makes selective and sector-specific specificity by industrial dependence and the complexity of the Chinese manufacturing ecosystem.
Adopt battery and energy storage sectors. In 2024, more than 70% of U.S. imported lithium-ion energy storage systems (the pillar of renewable energy infrastructure) come from China. With tariffs on Chinese batteries now exceeding 125 PCs, the U.S. could increase procurement from treaty partners such as South Korea and Japan, where tariffs remain relatively small at 10pcs.
Fallen Trade Rules: Apart from tariffs and retaliation measures, perhaps the most disturbing development is the erosion of global trade governance. The World Trade Organization (WTO) was once the backbone of the multilateral trade order, and more and more. As our objection to appointments is paralyzed, the WTO’s dispute resolution function has almost stopped when it is most needed.
In this institutional vacuum, regional and multilateral frameworks such as the Integrated and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Regional Integrated Economic Partnership (RCEP), and the Indo-Pacific Economic Framework (IPEF) have gained appeal. Despite some stability, these arrangements are often exclusive and lack strong enforcement mechanisms, which raises concerns about fragmented and uneven order of transactions.
The use of national security reasons to justify economic interventions increases uncertainty. Once reserved tools for defending critical infrastructure, such as export controls, technology bans and foreign investment screening, are now tools for strategic competition. China has recently threatened to limit exports of rare earth elements such as nectar and germanium, which is crucial to everything from smartphones to missile systems, highlighting how economic policies become a battlefield for geopolitical confrontation.
Interdependence from trade war to custody? Despite the harsh speech and punishment, a comprehensive economic dismissal between the United States and China remains impossible. The huge scale of their trade volume, investment interdependence and technological connections suggests that what experts call “custodial interdependence” is more realistic.
This emerging framework envisages targeted collaboration in strategic sectors such as semiconductors, biotechnology and telecommunications while maintaining collaboration in less sensitive areas. For the rest of the world, especially emerging economies, this forked system brings risks and opportunities. Strategic alignment, supply chain repositioning and greater scope of trade negotiation leverage.
What is happening between Washington and Beijing is no longer a narrow bilateral skirmish. It marks the beginning of a new chapter in international trade, shaped by changing geopolitical consistency, controversial rules and fragile institutions.
Navigation this future will be more than just a reactive policy. It will call for a rethinking of global economic governance, including revitalizing institutions such as the WTO, and setting new rules for digital trade, green technology and cross-border data flows. The challenge is not only to manage conflicts, but also to imagine and build a more inclusive, resilient and forward-looking trading system to change rapidly.
