Bracing for the US-China trade war to come
China’s latest export controls on 28 US companies shows Beijing is willing to fight Trump’s fire with fire
China’s announcement of export controls on 28 US companies, including defense giants Lockheed Martin and Boeing Defense, signals an ominous start to 2025.
This latest trade war salvo in the US-China rivalry comes just as Donald Trump prepares to resume the presidency, reigniting speculation that tit-for-tat trade policies will define the global economic landscape this year and possibly beyond.
The punitive move, ostensibly made to “safeguard national security and interests,” underscores Beijing’s growing willingness to retaliate against perceived US provocations, including the ramped-up restrictions imposed on China’s access to US and its allies’ chips and high-tech.
The timing suggests it’s not a coincidence. Trump’s campaign rhetoric repeatedly promised a tougher stance on China, including blanket 60% tariffs on China-made goods, greater scrutiny of Chinese investments and a doubling down on sanctions.
For China, the preemptive export controls send a message it is ready to fight US trade fire with fire. If Trump’s previous presidency taught us anything, it’s that his administration views trade policy as a zero-sum game.
The tariffs and trade barriers imposed during his first term sent shockwaves through global supply chains, but they also prompted China to escalate its countermeasures. By 2019, both nations were locked in a tit-for-tat trade war that left industries reeling and investors uncertain.
Fast forward to 2025, the dynamics have shifted but not eased. The global economy is already grappling with inflationary pressures, energy insecurity and the specter of war. A renewed escalation in trade tensions between the world’s two largest economies could exacerbate these challenges, dragging other nations into the fray as collateral damage.
Adding to this complex landscape, US investors in Chinese venture capital funds are now racing to comply with stringent new rules banning investments in companies developing artificial intelligence and other advanced technologies used by the People’s Liberation Army (PLA).
Measures introduced by the Biden administration, effective from January 2, impose civil and criminal penalties on American entities investing in Chinese firms involved in semiconductors, quantum computing or AI systems with military applications.
These rules place a hefty due diligence burden on investors. Institutions with money tied up in Chinese investment funds must secure “binding contractual assurance” that their capital will not flow into companies violating the regulations.
The dual pressure of compliance and geopolitical tension further complicates US-China financial interactions, underscoring the growing distrust between the two superpowers.
Retaliatory spiral
What makes this round of economic brinkmanship particularly concerning is its potential to spiral out of control. Trump’s incoming administration is unlikely to view Beijing’s latest export controls as mere posturing.
In response, it may double down on punitive measures, targeting Chinese firms more aggressively or tightening restrictions further on technology exports. Beijing, in turn, could escalate further, targeting American businesses operating in China or imposing new financial restrictions.
Such a retaliatory spiral risks becoming self-sustaining. Both nations are vying not just for economic dominance but also for ideological superiority, framing the conflict as a battle between democracy and authoritarianism (at least under Biden; that’s less clear under Trump).
Such high-stakes rhetoric leaves little room for compromise and businesses caught in the crossfire could face devastating consequences. The reverberations will not stop at the US and China. As the world’s two most influential economies clash, other nations will be forced to navigate an increasingly fragmented trade environment.
American allies may find themselves under pressure to align with Washington’s policies, even at the cost of their own economic ties with Beijing. Meanwhile, China’s strategic partners could be drawn more closely into its sphere of influence, creating new economic blocs that exacerbate geopolitical divisions while creating market distortions.
Emerging markets, in particular, stand to lose. Many rely on exports to both superpower economies and cannot afford to alienate either. For them, the fallout from disrupted supply chains and shifting trade flows could stall growth and increase volatility.
A way forward?
So, is there a way out of this looming trade war? History shows that cooler heads sometimes, though not always, prevailed. That was the case with the Phase One US-China trade deal in 2020 that temporarily de-escalated tensions.
However, such agreements often address symptoms rather than root causes. Without a fundamental shift in how the US and China perceive each other’s economic and strategic ambitions, any truce will likely be short-lived.
What’s needed is a framework for competition that includes clear rules and mutual respect for each nation’s core interests. Multilateral institutions like the World Trade Organization could play a role, but their effectiveness has waned amid accusations of bias and inefficiency.
Private-sector engagement may offer another path, as businesses have a vested interest in stable trade relations and could push for pragmatic policies on both sides. For businesses, investors and policymakers, the key will be adaptability.
The year ahead will test the resilience of the global economic system. Whether it emerges stronger or more fragmented will depend on how the US and China manage their rivalry. For now, the signs point toward more escalation, with China’s export bans and Trump’s anticipated tariffs setting the stage for a turbulent 2025.