Introduction

The complex relationship between the United States and China, the world’s two largest economies, has profound implications for global trade, investment, and geopolitical stability. Over the past decade, this relationship has been increasingly defined by trade tensions, marked by the imposition and escalation of tariffs, export controls, and strategic competition in key technological sectors. What began as an effort by the first Trump administration to address perceived trade imbalances and unfair practices has evolved through the Biden administration and into a second Trump term, creating a volatile environment characterised by uncertainty and a shift towards economic decoupling becoming more likely.

This dynamic has significant consequences not only for the two nations directly involved but also for businesses, consumers, and financial markets worldwide. The imposition of tariffs, designed to protect domestic industries and alter trade flows, often triggers retaliatory measures, disrupts established supply chains, increases costs, and forces companies to re-evaluate their global strategies. Nations, and the United States in particular, now grapple with the trade-offs between the economic efficiencies of globalisation and the perceived risks of interdependence.

This article delves into the multifaceted landscape of US-China trade relations, focusing specifically on the role and impact of tariffs, how various sectors may be affected, and how investors may be able to find opportunities in the new global order, even as it shifts under our collective feet.

 

US-China Trade Overview

Understanding the current state of US-China trade tensions requires examining the underlying trade flows that form the bedrock of this complex economic relationship. Data from official sources paints a picture of immense bilateral trade volumes. According to the US Census Bureau, the total goods trade between the two nations reached approximately $582 billion in 2024 (the US imported $439 billion worth of goods from China, and China imported $143 billion from the US). This figure represents a slight recovery from the level recorded in 2023 but remains below the peak observed in 2022, when total trade surpassed $690 billion.

Well-known is the substantial deficit for the United States, which Trump has framed as “ripping off” the US. The United States has run a goods-trade deficit with China since 1985, when bilateral trade was nearly balanced, albeit very low ($3.855 billion vs. $3.862b). From 1985’s near balance to today, the United States has increased exports to China 38-fold, while China has increased exports to the United States a whopping 115-fold. 

The trajectory over the last ten years (2015-2024) highlights the volatility introduced by shifting trade policies and global events. The US trade deficit with China widened steadily from 2015, reaching a peak of over $418 billion in 2018, the year the Trump administration initiated widespread tariff implementations. Following this peak, the deficit narrowed considerably in 2019 and 2020, influenced by both the tariffs and the initial disruptions caused by the COVID-19 pandemic, which snarled up supply chains globally.

US exports to China followed a similarly uneven path, dipping and rising before falling notably during the initial tariff years (2018-2019). A strong recovery occurred between 2020 and 2022, with exports peaking before declining again in 2023 and 2024. 

 

The Tariff Timeline: Escalation and Retaliation

The recent history of US-China trade relations has been dominated by the implementation and escalation of tariffs and export restrictions. This began in earnest during President Trump’s first term and continued, albeit with different strategic focuses, under President Biden, before intensifying again at the start of Trump’s second term, which has set the stage to totally upend decades of US trade policy with both China and the rest of the world.

 

Trump’s First Term (2017-2020): The First Salvos of a Trade War

Following initial investigations in 2017, the Trump administration began imposing tariffs in earnest in 2018. Early tariffs on goods like solar panels, steel, and aluminium were met by Chinese duties on US products. The US then announced significant 25% tariffs on approximately $50 billion worth of Chinese goods targeting strategic sectors, prompting immediate Chinese retaliation with 25% tariffs on a similar value of US imports, hitting key exports like aircraft, automobiles, and soybeans. Multiple rounds of tariffs were exchanged throughout 2018, culminating in US tariffs affecting over $250 billion of Chinese goods and Chinese tariffs impacting over $110 billion of US goods by the autumn. 

Non-tariff barriers also emerged, such as restrictions on Huawei, and a US-led campaign to dissuade countries from purchasing and implementing Huawei 5G equipment. And while Huawei was nearly strangled, a few years later the company made a stunning comeback to top smartphone sales in China, complete with its own homegrown operating system (due to a ban on using Google’s Android OS).

 

The Biden Interlude (2021-2024): Strategic Recalibration

President Biden largely retained the existing tariffs. His administration’s focus shifted towards strategic sectors and supply chain security, implementing sweeping restrictions on advanced semiconductor sales to China. In May 2024, significant tariff hikes targeting specific sectors were announced, including quadrupling the rate on Chinese EVs to 100%, doubling the rate on solar cells to 50%, and increasing tariffs on items like lithium-ion batteries, certain steel and aluminium products, semiconductors (reaching 50% by 2025), and medical supplies.

Moreover, Biden championed the US Science and Chips Act and an infrastructure spending plan to spur both supply-side and demand-side initiatives to build and consume in the United States.

 

Trump’s Second Term (2025-Present): Renewed Escalation

The start of President Trump’s second term saw a rapid re-escalation. New 10% tariffs on all Chinese imports took effect in early 2025, met by immediate Chinese retaliation. Another 10% was added by the US shortly after, triggering further Chinese duties on key US farm products. The situation intensified dramatically in April 2025 with a “Liberation Day” announcement of an additional 34% duty on effectively all Chinese imports – along with widely varying tariffs on every country in the world. Markets responded by crashing, including a frightening bout of US bond and equity market tandem movements, hinting at threats to the USD’s rock-solid role as the world’ reserve currency.

While most countries, including US allies, waited for a reprieve, China responded with retaliation, including expanded export controls on critical minerals, a WTO lawsuit, import suspensions, and anti-monopoly investigations into US firms. This triggered a retaliatory response from the Trump administration. The tit-for-tat escalation ended with a 145% tariff on Chinese goods and a 125% tariff on US goods, often quoted as an “effective embargo” on each other.

However, amidst this escalation, exemptions were made on both sides for critical items and components, and plenty of rhetoric from both sides made headlines in financial news.

 

The Economics of Specialisation vs. Tariffs

At risk of preaching to the choir, this section briefly explains the benefits of specialisation and why imbalances may arise. Most readers who are already investors may wish to skip this section.

Established economic principles emphasise the benefits derived from international trade based on specialisation and comparative advantage. This theory suggests that countries gain by focusing on producing goods and services where they are relatively more efficient or incur a lower opportunity cost compared to others. By specialising and engaging in trade, nations can collectively achieve greater economic efficiency, access a wider variety of goods often at lower costs, and foster innovation, ultimately enabling higher levels of consumption and welfare than possible in economic isolation.

Tariffs, however, function as taxes on imported goods, directly interfering with these trade mechanisms. While intended to shield domestic industries, address trade imbalances, or serve geopolitical goals, tariffs raise the price of imported goods for consumers and businesses. This distortion reduces the gains from specialisation, potentially leading consumers to shift to less efficiently produced domestic goods or simply bear higher costs, thereby diminishing purchasing power and overall economic welfare.

Furthermore, tariffs frequently provoke retaliatory measures from affected countries, escalating trade disputes that harm exporters in all involved nations, as seen with the impact on US agriculture and manufacturing sectors. They also increase costs for domestic firms relying on imported components, potentially hindering their competitiveness. The uncertainty generated by volatile tariff policies further discourages business investment and growth, creating a challenging environment that contrasts sharply with the stability fostered by predictable trade rules. This dynamic forces a difficult balancing act between the economic logic of free trade and the perceived needs for national security and supply chain resilience.

Trade imbalances may be inevitable, such as is the case between the US and Vietnam, a relatively poorer nation that largely cannot afford high-value, US-produced items like new pickup trucks. Conversely, Americans want cheap, lower-value items like T-shirts, produced in large quantities by Vietnamese factories. This leads to significant exports from Vietnam with few imports to rebalance trade.

 

Industries and Tariffs

The imposition of tariffs and the broader trade tensions between the US and China have sent ripples across numerous industries, forcing companies to navigate increased costs, supply chain disruptions, and strategic recalculations.

Tariffs will likely target both countries and specific industries, and this presents an opportunity to savvy investors who thoroughly understand industries and the companies involved in them. Some of the more prominent industries are robotics, drones, and electronics.

Robotics and Automation: China has invested heavily in factory automation, becoming a major global player in industrial robot adoption and production, accounting for a substantial share of operating robots worldwide. This long-term push may be one way for Chinese manufacturers to mitigate tariff impacts through efficiency gains. However, the robotics supply chain itself faces pressures. US tariffs impact imported robotic components, and even US firms using advanced surgical robots have faced increased costs for parts sourced from China. Tariffs on large automated systems like port cranes also saw sharp increases, impacting logistics modernisation in the US.

Drones: The drone sector exemplifies the tariff complexities. Chinese firm DJI dominates the US market (often cited at over 75% share). US tariffs (including recent additions) are expected to significantly raise prices for DJI products. Compounding this are reported shipment delays due to customs inspections. While this might seem beneficial for US drone makers, many rely heavily on Chinese components (motors, sensors, rare earths). China’s retaliatory measures, like export controls on rare earths, can thus increase production costs for these US companies, potentially offsetting any tariff advantage. The result is market uncertainty, higher prices for producers and end-users, and reseller challenges.

Electronics: This sector’s heavy reliance on Chinese assembly and components meant it faced potentially crippling costs from broad tariffs. Recognising this deep integration, the US administration granted crucial exemptions for products like smartphones and computers from the most recent major tariff round in April 2025. While providing significant relief, these exemptions didn’t cover all levies, and pressure to onshore or friendshore manufacturing persists, especially for firms like Apple heavily reliant on Chinese assembly. The semiconductor industry remains a focal point, subject to both tariffs (though some exemptions exist) and significant US export controls aimed at limiting China’s technological advancement.

Solar energy: Another flashpoint has been photovoltaic cells in solar panels, which already carried high tariffs before Liberation Day. Part of the value chain has now moved outside of China, in part to skirt US tariffs but also as Chinese manufacturers look to lower labour costs in lower-income countries like Vietnam or Myanmar. Tariffs on Southeast Asian nations’ production of solar panels into the US may be framed as closing a loophole that Chinese manufacturers are exploiting, but to potential strategic partners like Vietnam, the tariffs impact their own populations. American solar manufacturers must also contend with falling government support, placing solar industry companies (and their investors) in a difficult position.

Other Impacted Sectors: The tariff effects extend widely. Agriculture has been a consistent target of Chinese retaliation, impacting US exports like soybeans and pork. Of course, a second-order effect has been an uptick in other countries’ agricultural output. The automotive industry faces pressure from tariffs on vehicles and components. Consumer sectors like retail, furniture, and apparel, reliant on Chinese manufacturing, see costs passed to consumers. Industrial inputs like steel, aluminium, chemicals, and plastics are also affected, impacting downstream manufacturing. Even medical supplies saw tariffs increase on various items. This broad impact highlights the deep economic entanglement despite decoupling efforts.

Navigating Volatility with DCSC

The volatile tariff landscape, shifting regulations, and complex global supply chains described above create significant challenges for businesses and investors trying to understand their exposure and make informed decisions. Tools designed to cut through this complexity can be invaluable. One such platform is the Dynamic Company Sector Classification (DCSC) system, available at dcsc.ai.

DCSC offers several key advantages for navigating the current US trade policy shift:

  1. Granular Relevance Scores: Instead of binary yes/no industry mapping, DCSC provides company-sector relevance scores that range from 1% to 100%. This quantitative measure helps assess how related a specific company is to its various sectors, offering a more precise understanding of potential risks, exposures, and opportunities for investment or strategic planning.
  2. Dynamic Updates: The trade situation is constantly evolving with new tariff announcements, retaliations, exemptions, and geopolitical news. DCSC is designed to be dynamic, incorporating these updates to ensure its classifications and relevance scores reflect the latest conditions, helping users stay ahead of rapid changes. If a company closes one of its business units and exits an industry, this will appear in DCSC much faster than traditional systems like NAICS or GICS.
  3. Mapping Conglomerate Exposure: Many large corporations operate across numerous industries. Traditional classification systems often assign a company to a single primary sector, obscuring its exposure to risks or opportunities in other areas. DCSC maps these complex conglomerates accurately, reflecting their involvement across multiple sectors, which is crucial for understanding the true impact of targeted tariffs or industry-specific trends on diversified companies.

By providing these quantitative, dynamic, and multi-faceted insights, DCSC can empower decision-makers to better assess company-specific vulnerabilities and strategic positions within the turbulent context of US-China trade relations.

 

The Future Outlook: Uncertainty and Strategic Competition

The trajectory of US-China trade relations remains highly uncertain, characterised by deep-seated strategic competition and the persistent use of tariffs. While exemptions for certain electronics signal pragmatism regarding integrated supply chains, the overall trend under the current Trump administration points towards continued friction. The imposition of broad tariffs, coupled with China’s retaliation and focus on self-sufficiency, suggests a return to the pre-trade war status quo is unlikely soon.

The concept of decoupling has gained traction as both nations pursue strategies to reduce vulnerabilities. The US focus on reshoring manufacturing aims to bolster national security and jobs. Simultaneously, China accelerates efforts to reduce reliance on foreign technology, investing heavily in domestic innovation and automation. This dual push could lead to a partial bifurcation of global supply chains, especially in high-tech industries 

The global impact is significant. Increased costs can fuel inflation. Supply chain disruptions (or the threat thereof) force costly reorganisations, potentially shifting production elsewhere, though transitions are complex. Uncertainty drags on investment and trade. Strategic competition also risks undermining multilateral institutions like the World Trade Organisation (WTO).

Is resolution possible? While temporary de-escalations have occurred, fundamental disagreements are likely to persist indefinitely. The political climate in both countries seems to favour a more confrontational stance, making comprehensive resolution challenging. The future likely involves continued strategic manoeuvring, targeted protectionism, and ongoing efforts by businesses to build more resilient, albeit potentially less efficient, supply chains. The relationship will likely remain a defining feature of the global economic landscape.

 

Conclusion

The US-China trade relationship is a critical, yet increasingly contentious, element of the global economy. Recent years have seen a dramatic shift towards escalating trade friction driven by tariffs, with a full-scale trade war (in both goods and services) seeming more likely as Trump’s second term progresses. 

Data shows immense but volatile trade volumes, with the persistent US deficit a key issue. While economic theory favours specialisation, tariff policies often prioritise national security and domestic industry, causing disruptions and raising costs globally. Industries from agriculture to high-tech sectors like robotics, drones, and electronics face complex impacts. Strategic exemptions for some electronics highlight decoupling’s practical limits, yet many sectors grapple with cost pressures and supply vulnerabilities.

Looking ahead, uncertainty prevails in the relationship itself, but also outside it. The US-China trade relationship does not exist in a vacuum, and decades of assumptions about alliances, trade relationships, and even the centrality of US markets and the USD are now being questioned. Breakthroughs between the US and other key economies, like the EU or Japan, could shape how the world economy develops and the US’s role in it. Naturally Black Swan events, unpredictable by definition, could completely invalidate the current expectations and trends.

All in all, investors can best insulate their portfolios and build longer-term strategies using tools like DCSC that provide much more transparency in company-sector relations. With the rapid pace of change, any long-term strategy must also adjust to new information, which DCSC also excels at.