CASE STUDY: THE US-CHINA TRADE WAR
1. Background: Origins of the US-China Trade War
- Trade volume between the two countries grew rapidly over the past three decades,
especially after China joined the WTO in 2001. Imports from China surged
dramatically, while U.S. exports grew much more modestly, resulting in a steadily
widening trade deficit.
+ By 2018, the United States had imported goods worth $539.5 billion from China,
while exports stood at just $120.3 billion. This led to a record-high trade deficit of
$419.2 billion, a key point of the US-China trade war
- Beyond the deficit, deeper structural concerns fueled tensions, including:
+ "America First" Policy - The U.S. shifted toward protectionism, using tariffs
and unilateral actions to defend domestic industries and push for better trade
terms.
+ China’s High-Tech Ambitions - The “Made in China 2025” plan aimed for
global dominance in advanced industries, sparking U.S. concerns over unfair
practices like forced tech transfers and IP theft.
+ Unfair Market Access - The U.S. criticized China for restricting access to its
markets while allowing Chinese firms to expand abroad under state support.
+ Sectoral Restrictions - Despite promises, China limited foreign access to
critical sectors like finance and technology, creating an uneven playing field.
+ Currency manipulation - The U.S. accused China of weakening the yuan to
offset tariffs.
➤ In August 2019, China allowed the yuan to drop below 7 per dollar
— its weakest level in over a decade — prompting the US to label
China a "currency manipulator officially
=> The trade war was initiated by D. Trump in 2018 to reduce the deficit and push back
against unfair trade practices by China.
2. Trade war timeline (2018-2020)
- To better understand how the trade war unfolded, we can break it down year by year:
2018 – the beginning, 2019 – escalation, and 2020 – a temporary truce
Date U.S. Action China’s Response Tariff Rates
2018 – The Beginning
Jan 22 / Tariffs on solar panels, steel, and — US: Up to 30%
Mar 8 aluminum (global)
April 2 — Tariffs on $3B of U.S. China: 15–25%
goods
July 6 Tariffs on $34B of Chinese goods Tariffs on $34B of Both: 25%
U.S. goods
Aug 23 Tariffs on an additional $16B Matching $50B tariffs Both: 25%
(total $50B)
Sept 24 Tariffs on $200B of Chinese Tariffs on $60B of - US: 10%
goods U.S. goods - China: 5–
10%
2019 – Escalation
May 10 Raised $200B tariffs from 10% Raised tariffs on $60B - US: 25%
→ 25% of U.S. goods - China: 5–
25%
Sep / Oct Imposed 15% on $300B Tariffs on $110B and - US: 15%
(remaining imports) $75B of U.S. goods - China: 5–
25%
2020 – A Temporary Truce
Feb 14 Phase One Deal: Tariffs remain, Slight reductions on - US: 15–
but partial reduction $185B of U.S. goods 25%
- China:
2.5–25%
=> The US-China trade war escalated rapidly between 2018 and 2019, with broad tariffs
hitting most bilateral trade. Although the Phase One agreement in 2020 marked a temporary
easing of tensions, it left key tariffs and structural issues unresolved at the heart of the
conflict.
3. Impacts of the Trade War
Category Impact on the US Impact on China
Slower GDP growth due to Noticeable slowdown, especially
Economic Growth reduced exports and uncertainty in export-dependent sectors
in investment
Decline in exports to China; Sharp drop in exports to the US;
Trade Balance import costs rose due to tariffs trade surplus with other nations
partially offset
Job losses in agriculture and Factory closures and layoffs in
Employment manufacturing, some short-term export sectors, pressure on low-
layoffs skilled labor
Higher prices for goods Increased prices for American
Consumer Impact (electronics, appliances, etc.) due products; limited access to certain
to tariffs goods
Uncertainty in planning; some Exporters lost a key market; firms
Businesses firms relocated supply chains out sought new destinations
of China (ASEAN, Africa, etc)
Push to diversify away from Major disruptions, reorientation
Supply Chains China (eg, Vietnam, Mexico) toward domestic demand, and
regional partners
A stronger dollar made exports Yuan depreciation helped exports
Currency Effects less competitive but raised fears of capital
outflows
US investors became more FDI inflows dropped; China
Foreign Investment cautious and reduced FDI into offered incentives to retain
(FDI) China; more into Vietnam, India foreign businesses
Crackdown on Chinese tech (eg, Accelerated domestic innovation;
Huawei bans); tension over push for self-reliance in high-tech
Technology & IP
intellectual property, boosted sectors
domestic security
Escalating tensions, not just in More nationalistic economic
Political Relations trade but in tech and geopolitics policies; deepening ties with non-
Western partners
=> As the world’s two largest economies clashed, tensions between the U.S. and China
disrupted global trade flows and destabilized supply chains, forcing countries and companies
worldwide to adapt. As their conflict intensified, the impact extended beyond both
economies, contributing to a broader slowdown in global economic growth.
4. Global Trade Institutions and the US-China Trade War
- Limited Role of the WTO:
+ Failure to prevent escalation: Despite being the central institution for global trade
governance, the WTO was largely bypassed during the trade war. Both the US and
China implemented unilateral tariffs, violating the WTO’s principles of fairness.
+ Dispute Resolution Paralysis: The U.S. blocked appellate body appointments in
2019, paralyzing dispute resolution, even as tensions escalated.
+ Outdated Rules: The WTO’s existing frameworks were not designed to handle
modern trade issues like forced technology transfer, digital trade, or state subsidies -
key concerns in the US-China conflict.
- Rise of Alternative Trade Governance
+ RCEP & CPTPP Gain Relevance: As trust in multilateral trade institutions like the
WTO declined, countries increasingly turned to regional trade agreements such as
RCEP and CPTPP, which are key platforms for managing trade tensions in the US-
China conflict.
+ Faster & More Flexible: These agreements provided faster negotiation channels and
customized trade rules, which were more effective in responding to emerging trade
tensions.
+ Signal of Institutional Shift: This trend reflects countries' growing skepticism
toward multilateral institutions, like the WTO, in handling modern trade challenges.
