The Trade War That Won’t End: How U.S.-China Power Competition Is Shaping Global Economics

The trade war between China and the US will only get worse. Tanja Schweinberger explores the structural reasons of the conflict – and what it might mean for the rules based order.

At no time since the Second World War, global support for trade, and for international cooperation more broadly, has been less certain than today. Key nations’ support for open-economy politics and free trade is dwindling. This shift toward isolationist politics is exemplified by the escalating clash between the world’s two largest powers, the United States of America and the People’s Republic of China.

The trade war started under the previous Trump administration, when tariffs against the People’s Republic of China (PRC) were unilaterally erected in 2018. China reciprocated by elevating tariffs on U.S. goods. Even though a new U.S. administration under Joe Biden came into office in 2021, the U.S.-China trade war persisted.

Then, on November 6th, the world woke up to the news of a new U.S. presidency under an administration led by Donald Trump. The election was closely followed around the world because the election of Kamala Harris would have made a difference for nearly all areas of U.S. domestic and foreign policy. However, it would have been very likely that the U.S. trade war with China would have continued, like under the Biden administration, also under a Harris presidency.

It’s the geopolitics, stupid

Trade between USA and China has become highly politicized as a foreign policy issue. Therefore, restoring trade policy cooperation between the two countries will be difficult.

In this context of strategic rivalry, economic relations are increasingly leveraged as tools to achieve broader political objectives. This shift means that domestic economic measures, such as compensation for industries harmed by trade policies, are insufficient to address the core issue. Rather, the focus has turned to which nation gains or loses more from trade, as economic outcomes are also evaluated through the lens of geopolitical advantage.

Instead of rule-based trade between the US and China, the domestic political factors pushing for tariff policy – protectionism and great power competition – will lead to a downward spiral of tariffs and export controls.

Protectionism against China is bipartisan

Current political rhetoric in the US appeals to domestic economic justifications – protecting US jobs and decreasing the U.S. trade deficit – for supporting tariffs on imports from China.

The main logic here is that open trade with China has negative economic effects for import-competing sectors, like manufacturing industries. Mr. Trump proclaimed: “Under my leadership, we’re going to take other countries’ jobs.” implying that other countries like China have taken U.S. jobs away and that they can be brought back by implementing tariffs. The idea that trade creates not only winners but also losers and that there have been redistributional consequences of trade with China is not new and has received substantial empirical support.

However, the political rhetoric about bringing back jobs is misleading and seems disconnected from reality. Whilst trade with China has certainly not just created economic benefits but also costs for the U.S., the ability of tariffs to bring jobs back has not been supported empirically. The proportion of U.S. factory jobs has actually decreased since the first tariffs were implemented in 2018.

A related economic justification for starting the trade war with China is about reducing the U.S. trade deficit. Vilified as the “greatest theft in history” by Donald Trump, the trade deficit is presented as an inherent U.S. weakness – compared to China, which is upholding a trade surplus by exporting more than importing.

But here again, the economic reality seems disconnected from political rhetoric as the overall U.S. trade deficit increased after the tariffs were implemented. As the size of the trade deficit with China diminished, the trade deficit of the U.S. with other countries grew.

The declining hegemon

These domestic economic justifications are increasingly tied in with great power change concerns. Current U.S. political rhetoric highlights the US-China power struggle and few politicians across the political aisle openly disagree about this prioritization.

Cleary, there have been structural changes in the international system since the unipolar moment of the nineties. A redistribution of power between the USA and China has occurred over time. As China’s economic strength has grown, it is increasingly catching up with U.S. power.

As a country’s relative power changes, its international outlook adapts.  When a country expects to become more powerful, there is an increasing benefit of providing public goods, like trade openness, as the country will expect to benefit even more from such arrangements in the future. Ultimately, a hegemon, the world’s most powerful country, supports the international system because it benefits disproportionally from its rules and institutions. Accordingly, the opposite logic is likely when relative power is expected to decrease. Oftentimes, when a hegemon’s power declines or stagnates, its support for public goods like economic openness has decreased because it will focus more narrowly on itself. This implies that it becomes less willing to maintain the costs of international cooperation.

Even though domestic economic reasons feature prominently in public debates about the trade war, the simultaneous politicization of the power struggle between the USA and China suggests that these economic costs matter primarily because they weaken the United States vis-à-vis China. Thereby, the repeated politicization of trade cooperation with China as a great power competition issue across the political aisle has severe repercussions for mass public opinions in the USA.

Future administrations, whether democratic or republican, are likely to continue trade conflict with China.

Research of the mass public in the USA and China shows that public perceptions of trade deficits are negatively shaped by the degree of political adversity of the trading partner. Moreover, highlighting international power changes is consequential for public opinion on trade: a decline in relative power decreases public support for economic openness and is associated with more negative views of the U.S. trade deficit. Remarkably, these views hold regardless of survey participants political and socio-economic attributes, like partisanship, level of nationalism, education and the past local impact of the China shock.

This public perception – trade as a power issue – leaves politicians who seek re-election much less room to maneuver, which in turn makes it difficult to decrease trade conflict. Achieving a decrease in trade conflict is unlikely also because of the other side: China. Continued trade aggression from the USA has hardened public opinions on pursuing a more cooperative policy there as well.

The conflict spiral

As both sides spiral into further trade conflict, which in turn aggravates mass public views of the other country further, it will become very difficult to resurrect trade policy cooperation, a fundamental pillar of the liberal international order.

The rest of the world needs to prepare for an intensification of trade conflict between the world’s two largest powers.

Even though Donald Trump initially started the trade war with China, this dynamic is not about a particular American president. In the U.S., rising concerns of power competition with China have steadily been growing and were already highlighted by Barack Obama’s administration. The Biden administration continued and intensified the trade war.

The question is therefore not necessarily whether power competition with China will diminish but what means will be used to pursue it. All these leaders, with entirely different political ideologies and beliefs, have publicly suggested that China is a threat to U.S. national security so that the public has been exposed to such power competition rhetoric across these different legislatures. These threat perceptions of China, driven by structural systemic changes, are therefore not “Trumpist”. Future administrations, whether democratic or republican, are therefore likely to continue trade conflict with China.

How the U.S.-China trade war shapes broader global dynamics

Do these high levels of politicized American-Chinese power competition imply that conflict will prevail in other areas beyond trade? Increased public salience to U.S.-China power competition could mean that areas beyond trade relations are affected and similarly constrained.

For example, although student exchanges between both countries seems rather distant from commercial exchange, the number of Chinese students in U.S. universities has dropped also due to the recent tensions between the USA and China. On the other hand, as there is some evidence that power competition can also increase public support for international cooperation, it is not clear whether the outcomes in other issue areas are necessarily conflictual. The power competition argument will be difficult to tone down but it can be taken into a different direction. To the extent that economic growth will become increasingly be intertwined with questions about green industries and production, both countries could compete for leadership of the green transition. The USA and China could increasingly compete with each other on global climate change mitigation and seek to outdo each other. An area that might have more cooperative potential even in a power transition context therefore is climate change politics.

In conclusion, a return to trade policy cooperation between the USA and China seems increasingly unlikely. Trade with China has not just been politicized as an economic issue but also, ultimately, as an international political question of great power struggle. It will be difficult to depoliticize this.

This dynamic has structural causes pertaining to important changes in the relative distribution of power in the international system. Once a consensus amongst mass public opinions, which are currently deeply polarized and conflictual for most issues, on the geopolitical threats of China has been reached, this view will be hard to get rid of.

The USA, China, Europe and the rest of the world need to prepare for a continuation and intensification of trade conflict between the world’s two largest powers and economies.