Post pandemic, when the global economy had almost begun to breathe again, a realistic trade war broke between the world’s two mightiest economies. Such things make central bankers sweat, send shivers down the spine of technology giants, and cause a mumble or two from consumers. A trade war between the world’s two largest economies has reached an alarming situation. After months of rhetoric pouring out of the White House, President Donald Trump has proudly kept his promise of putting a massive 104% tariff on everything imported from China. As retaliation, China increased the tariffs on American goods, claiming to “fight to the end”, and it raised the tariff from 34% to 84%.

With both sides deeply entrenched, the rest of the world looks on nervously and in reality, it really should. An extreme economic war between the United States and China stands to threaten not only trade between the two countries but global stability. As none of the two sides seems to back down, the world apparently has braced itself for turbulent economic times.

An Imbalanced Trade Relation

In 2024, US-China trade summed up to $585 billion, with nearly $440 billion worth of goods imported from China by the US, while exporting only $145 billion worth goods in exports. That variation indicates a $295 billion deficit which has been a long-time talking point for Trump though he has recently exaggerated it to nearly $1 trillion in public statements.

Existing tariffs during the first term of Trump and the additions under President Biden did reduce America’s dependence on imports from China, from 21% of total imports in 2016 to 13% in 2024. However, China has turned many Chinese exporters into rerouting their goods through Southeast Asian countries, for quickly moving goods without the tariffs imposition. The U.S is now undertaking reciprocal tariffs on those countries as well.

Trade Crossfire

The trade war is affecting sectors of economic activity that are among the biggest on both sides. Exported to the United States from China are electronics, cell phones, computers, and batteries, where cell phones alone are contributing to 9% of all imports. A good bulk of these are assembled in China for Apple, whose stock has dropped 20% in the last month.

On the other hand, the biggest item America sells to China is soybeans, broadly for feeding China’s giant pig population. Pharmaceuticals and petroleum are also exported from the United States to China. These goods now face retaliatory tariffs that are pushing prices up and straining American exporters.

Where do the Tariffs Lead?

Trade tariffs are only one of the many arenas on which the U.S government holds opposition with China, both countries are examining more strategic ways to exert pressure. America has already taken the first steps to tighten its technology barriers against China by denying the latter access to cutting-edge microchips used mostly for AI and military purposes. In retaliation, China might restrict the export of rare earth metals like germanium and gallium, which are essential to the manufacture of electronics and military systems.

On the other hand, other countries have raised concerns about Chinese subsidies. Exports from China, especially steel products, are often produced at below market prices with the help of the state. Once the entry is prohibited into the U.S markets, these imports could flood others, making them less competitive and thus destabilizing foreign industries.

A Global Fallout

According to the IMF, China and the U.S account for almost 43% of global GDP. Any significant slowdown in one or the other, if not in both, may dampen world economic growth and shake investor confidence globally. Emerging markets are especially at risk, for they are already coping with supply chain shifts and capital outflows.

Another risk springs up in the form of increased dumping where China actually focuses on excess production (such as subsidized steel) to exposure in other markets or third-party countries. While consumers could benefit from lower-priced goods, domestic industries could be destroyed in the process. Groups such as UK Steel have already sounded alarm bells about its potentially devastating effects on the domestic industry.

At the same time, large multinationals with a foot in both the American consumer market and Chinese manufacturing are being squeezed from both ends, as there would come a point when they will have to pick a side. From electronics to electric vehicles, production expenses are increasing, profit margins contracting, and boardrooms are reevaluating their global strategies.

A Tariff Tit-for-Tat

Indeed, this goes well beyond being a tariff tit-for-tat. It threatens to turn into an economic cold war with the potential to redefine global trade. With both countries digging in deep and supply chains increasingly caught up in the crossfire, the fallout might be felt all the way from commodity prices to consumer electronics.

Let’s be honest here, a full-blown trade war between the US and China seems not just bad economics but an act of geopolitical recklessness. Two countries nearly holding half of the global economy, where tariffs and political bragging almost weakens the very basis of interconnected global trade. While the nationalistic enthusiasm may thrill the crowd, the consequences will soon be felt by all the industries. The U.S-China trade war does not only disrupt bilateral relations but puts the entire global economy at stake. The markets have a clear message, should the U.S and China wish to continue down this lethal path, the price will be paid by the rest of the world.