Will trade war hasten US, China decoupling?

Deutsche Welle :

The US-China trade war has reached new heights as Beijing raised its retaliatory tariffs on US goods to 125pc, hitting back against US President Donald Trump’s decision to hike duties on Chinese goods to 145pc.
Chinese leader Xi Jinping yesterday made his first public comments on the escalating trade conflict, telling Spanish Prime Minister Pedro Sanchez in Beijing that “there are no winners in a trade war, and going against the world will only lead to self-isolation.”
Xi also stressed that Beijing is “not afraid” and expressed confidence in the nation’s ability to overcome the challenges posed by US President Donald Trump’s policies.
“Regardless of how the external environment changes, China will remain confident, stay focused, and concentrate on managing its own affairs well,” Xi was quoted as saying by Chinese state broadcaster CCTV.
Trump takes aim at China
On April 2, Trump unveiled sweeping duties on all US trading partners, unleashing an all-out assault on global trade and sending shockwaves throughout the world economy. The levies were set to commence on April 9.
But hours after they came into effect, the US president announced a 90-day tariff pause for over 75 countries that were seeking trade negotiations with Washington.
Trump, however, excluded China from the pause and instead ratcheted up duties on Chinese imports as punishment for Beijing’s initial move to retaliate.
Accusing China of showing a “lack of respect,” the US leader raised the tariffs to 125pc, bringing total duties on Chinese imports to 145pc, including a 20pc levy previously imposed over Beijing’s alleged failure to curb fentanyl exports to the US. Beijing criticized Trump’s actions as “bullying” and vowed to fight “to the end” with counteractions.
If Washington continues to impose additional tariffs on Chinese goods, “China will ignore it,” the nation’s Commerce Ministry stated yesterday, pointing out that US goods would then no longer make economic sense for importers.
Are the US and China moving toward decoupling?
The escalating tit-for-tat tariffs and the unwillingness of either side to initiate talks could lead to a breakdown of trade ties between the world’s largest economy, the US, and the second-largest economy, China.
“The US and the PRC (People’s Republic of China) right now are trying to see who can impose more pain on the other side,” Chong Ja Ian, an associate professor of political science at the National University of Singapore, told DW.
Although China’s reliance on the US market for trade has diminished over the years, it remains substantial, with the Asian giant exporting nearly $440 billion worth of goods to the US in 2024.
On the flip side, China is also a vital export market for American goods, particularly agricultural products like soybeans and pork, as well as high-tech goods.
Given the deeply intertwined trade relationship between the two countries, the ongoing tariff war has turned into a contest of “who can outlast the other,” Chong says.
While some remain hopeful that both sides would eventually back down, Chong sees that as “wishful thinking” in light of the leadership styles of Trump and Xi.
“Neither side wants to lose face. Both sides want to talk tough and act tough. So that creates a situation where there’s less negotiation, less willingness to compromise, and more potential for escalation,” he said.
Whether a full decoupling of the two economies will occur depends on how long the tit-for-tat continues and whether both sides keep the escalation bilateral, according to Chong. He noted that some goods are also rerouted through third countries before reaching the US or China.
Wang Guo-Chen, an economist specializing in China at the Chung-Hua Institution for Economic Research in Taipei, argues that the US and China have “already economically decoupled in practice as Chinese goods have been unable to enter the US market since Trump raised tariffs to 104pc.”
What’s in China’s toolkit?
Since the latest round of the trade war began, China has resorted to retaliatory tariffs, export restrictions to the US, and a suspension of American agricultural imports. More recently, Beijing has rolled out additional ways to strike back.
On April 11, China’s National Film Administration announced plans to “moderately reduce” the release of Hollywood films in the Chinese market, citing that US films would likely see reduced popularity following the 145pc tariff on Chinese imports.
Meanwhile, China’s Commerce Ministry pledges to assist “foreign trade companies facing export challenges by tapping into the vast domestic market” through trade-in programs and government initiatives.
But this domestic pivot may bring unintended consequences, especially for foreign businesses operating in China, which could face increased competition from Chinese firms, said Dali Yang, a political scientist and sinologist at the University of Chicago.
Beijing has also sought to diversify its trade channels in recent years, successfully shifting some production to Vietnam, other Southeast Asian nations, and Mexico. But that strategy is now running into new obstacles.
“Part of the Trump effort is actually to stop or slow those efforts,” Yang told DW, adding that these alternative markets also have limited capacity to absorb all the Chinese goods once destined for the US.
“The simple fact is China operates on such a scale that if allowed, China can practically produce for the entire world,” Yang said, highlighting the overcapacity issue that continues to weigh on China’s trade relationships.
Meanwhile, the US remains a more attractive trading partner for most countries. “Most countries trading with the US run surpluses. In contrast, many of China’s trade partners, while benefiting from Chinese goods, typically run deficits.”
“Trading with China, therefore, may not always result in significant job creation in those countries, as the imbalance often favors China,” Yang said.
Will Beijing fight on alone?
Despite the global impact of Trump’s sweeping tariffs, China finds itself alone in this “retaliation” battle, as other Asian leaders, including from Vietnam, Cambodia and India, quickly expressed their willingness to ease tensions with the US, while Japan and South Korea sent officials to engage in discussions.
“I think a lot of this is due to Beijing’s misjudgment of the situation,” said Wang, adding that China believed everyone would follow them once they took a strong stance. “But instead of following the step of Beijing, countries rushed to call Trump and arrange negotiations,” the expert pointed out.
On the other hand, Beijing’s approach also aims to reinforce and respond to rising nationalist sentiment within China, experts say.
Under Xi Jinping’s leadership, Beijing has long embraced a tough and confrontational “wolf warrior” diplomacy, with anti-America sentiment intensifying as bilateral relations grow strained.
“But there’s also a risk that the animosity generated may be difficult to reverse and control,” Chong noted. “It creates a situation where China is likely less willing to compromise, especially if that compromise becomes visible.”