The US-China Trade War: Is the Global Economy Keeping Up?

By Sebastian Clarke

From iPhones to soybeans, the U.S.-China trade war has returned with full force, and its ripple effects are hitting everyone. If you're wondering why your gadgets are getting pricier or why farmers are on edge, buckle up—because this economic battle is reshaping global trade in real-time.

After a period of relative stability, trade tensions have escalated to levels last seen in 2018. On February 4, 2025, President Donald Trump imposed a 10% tariff on all Chinese imports, citing concerns over fentanyl trafficking. In response, China swiftly retaliated, introducing a 15% tax on U.S. coal and liquefied gas, along with a 10% tariff on crude oil, cars, and agricultural machinery.

Tariff Fallout: How Businesses Are Coping

Once again, businesses are being forced to reassess and restructure their operations to manage the risks posed by escalating tariffs and trade restrictions. The technology sector faces particularly significant challenges, as tightened U.S. restrictions on chip exports further limit access to advanced semiconductor technology. While companies such as Huawei and SMIC have made notable progress in domestic chip production despite these constraints, these measures will likely continue to hinder their ability to compete with global industry leaders.

Meanwhile, manufacturing giants like Apple, Tesla, and Nike are contending with rising production costs due to their reliance on Chinese supply chains. As expenses mount, businesses are increasingly seeking alternative supply chain strategies to mitigate the economic impact of geopolitical uncertainty.

Supply Chain Shifts: How Businesses Are Adapting

To reduce dependence on China, western businesses are advancing diversification efforts, looking at other regions for viable alternatives.

1) Nearshoring and Friendshoring

Latin America has emerged as a key alternative, offering regional trade advantages. While the United States-Mexico-Canada Agreement (UMSCA) has strengthened economic ties in North America, its long-term stability remains unclear following shifting U.S. trade policies. Despite this, companies such as Tesla and Ford expanded operations in Mexico to benefit from the regional proximity of their supply chain to the U.S. Meanwhile, European manufacturers are increasingly turning to Poland and Hungary, using Eastern Europe as a strategic hub to bypass trade disruptions.

2) The Rise of Southeast Asia

With policies promoting trade neutrality, Southeast Asia has capitalised on global supply chain uncertainty, attracting significant foreign investment. Vietnam, Thailand and Malaysia have all positioned themselves as key destinations for electronics manufacturing, providing an alternative to U.S. and Chinese dominance in this critical sector. By strengthening domestic industries, these nations have drawn major investments from Samsung, Apple, and Microsoft. A similar trend is unfolding in South Asia, where Apple has shifted part of its iPhone production to India, aligning with the country’s broader strategy to attract foreign direct investment.

3) China’s Response: Dual Circulation Strategy

China appears to be doubling down on its “dual circulation” strategy, focusing on domestic consumption and self-sufficiency, seeking to respond to concerns about foreign market reliance and growing geopolitical tensions. At the same time, it is forging deeper economic ties with Africa and the Middle East, reducing reliance on U.S. trade. This shift signals a move towards a more fragmented global economy, where supply chains are increasingly shaped by geopolitical alignments rather than pure economic efficiency.

The New Trade Landscape: Winners and Losers 

Some countries stand to benefit from the shifting trade dynamics where they have successfully capitalised on the need to diversify supply chains. Moreover, Washington is enhancing economic alliances with Indo-Pacific nations such as India, Japan, and Australia, further shifting global trade patterns. Likewise, companies that diversified early, introducing flexible supply chains utilising multiple regions, are proving to be the most resilient.

However, not all businesses can pivot easily. Small and medium-sized companies that remain dependent on Chinese suppliers are particularly vulnerable. For both American and Chinese consumers, inflationary pressures are likely to rise due to the increasing costs of imported goods. Meanwhile, multinational corporations that were slow to adapt are now facing higher operational costs and growing trade uncertainty.

Future Outlook: Adapt or Fall Behind

As global trade evolves, to stay competitive, businesses must prioritise flexibility, supply chain optimisation, and proactive risk management. Those that adapt quickly to shifting trade dynamics will be best positioned for long-term resilience, while firms that fail to diversify their supply chains risk exposure to geopolitical disruptions. The message is clear: adapt quickly or risk falling behind in an increasingly fragmented global economy.