The US-China trade war, once seen as a temporary dispute, has now entered a structural phase—becoming what economists call the “new normal.” Persistent tariffs, restricted technology access, and supply chain realignments are no longer short-term frictions but enduring features of a more fragmented world economy. As both Washington and Beijing double down on economic security and strategic independence, global growth faces a new era of uncertainty and adaptation.
Background and Timeline
What began as a trade skirmish in 2018 has evolved into a comprehensive economic decoupling that shows no signs of reversal. The current tariff structure maintains US duties at 30 percent on Chinese imports following a recent 90-day pause negotiated to prevent economic disruption during the critical holiday trade season. This represents a significant de-escalation from the peak levels earlier in 2025, when average US tariffs on Chinese exports reached 127.2 percent before being reduced following Geneva negotiations.
The second Trump administration has fundamentally altered the trade landscape through aggressive use of the International Emergency Economic Powers Act (IEEPA), enabling rapid tariff implementation beyond traditional trade authority. The imposed tariffs amount to an average tax increase of nearly $1,300 per US household in 2025, underlining the domestic cost of this economic confrontation.
The timeline of escalation has been swift and dramatic. February 2025 saw the initial imposition of 10% “fentanyl tariffs” on all Chinese goods, followed by successive increases that briefly pushed effective rates above 145% before diplomatic intervention. China responded with retaliatory measures reaching 125% on American goods, bringing both economies to the brink of what analysts termed a near-embargo.
The ‘New Normal’ in Trade and Supply Chains
The transformation of global supply chains represents perhaps the most enduring legacy of the trade war. The “China Plus One” strategy, where multinationals maintain Chinese operations while diversifying production elsewhere, has accelerated into what some analysts now call “Anywhere but China.”
Vietnam has emerged as the breakout star of this realignment, with most Samsung smartphones now manufactured there and Apple moving production of iPads, MacBooks, AirPods, and Apple Watches to the country. The scale of this shift is remarkable: Outward direct investment from China into ASEAN manufacturing nearly tripled to about $9.2 billion in 2023, up from around $3.2 billion in 2017.
This industrial migration isn’t limited to Southeast Asia. Mexico captured 24% of the US market share that China lost between 2018 and 2024, with Mexico’s share of US imports increasing to 15.5% while China’s declined 7.8 percentage points to 13.4%. The data reveals a fundamental restructuring of North American trade relationships, with nearshoring gaining momentum as companies prioritize supply chain resilience over pure cost efficiency.
The electronics and technology sectors have led this transition. Malaysia captured 67% of regional semiconductor investment, emerging as a key hub for global players, while Vietnam attracted 85% of consumer electronics investments in the industry between 2018 to 2024. These investments aren’t merely assembly operations but increasingly include research and development facilities, suggesting a long-term commitment to diversification.
Economic and Market Implications
The International Monetary Fund’s latest assessments provide a nuanced picture of the trade war’s global impact. The IMF projects global growth at 3.2 percent for 2025 and 3.1 percent for 2026, representing only a modest cumulative downgrade of 0.2 percentage points despite the trade tensions. This relative resilience reflects successful adaptation by the private sector and strategic government interventions.
However, the impact on global trade flows is more severe. Global trade growth is projected to slow to just 1.7 percent in 2025—a significant downward revision that reflects the fragmentation of previously integrated supply chains. The divergence between GDP growth and trade growth signals a potential reversal of decades of globalization.
Market dynamics reveal interesting patterns of adjustment. According to US statistics, imports from China fell from 21.6 percent of total US imports in 2018 to 13.4 percent in 2024, though Chinese data suggests a much smaller decline, highlighting measurement challenges amid trade rerouting. By May 2025, China’s share of US imports had fallen to just 7.1%, the lowest since 2001, though questions persist about transshipment through third countries.
Corporate earnings across sectors reflect these shifts. Companies with diversified supply chains have generally outperformed those heavily dependent on China-US trade corridors. Foreign direct investment patterns have also shifted dramatically, with investment into China declining while flows to alternative manufacturing hubs surge.
Winners and Losers in the New Order
The redistribution of global manufacturing has created clear winners. ASEAN’s exports jumped 22.6 percent growth in 2022, the highest among Asian regions, while service exports expanded by 19.1 percent, also the fastest in Asia. Vietnam’s economy has particularly benefited, achieving 7% annual GDP growth from 2018 to 2024, the highest in ASEAN.
Beyond Southeast Asia, other beneficiaries include India, which has attracted significant technology investment despite facing its own US tariffs, and Eastern European nations positioning themselves as alternatives for European companies seeking to reduce China exposure. Brazil has partially offset lost US agricultural exports to China, though even Brazil experienced a 15% decrease in agricultural sales to China in 2025, suggesting broader Chinese import contraction.
The losers in this realignment include traditional manufacturing economies heavily integrated with Chinese supply chains but lacking the scale to serve as alternative hubs. Germany and the EU have faced economic headwinds despite maintaining good trade relations with both the US and China, caught in the crossfire of competing economic blocs.
Small and medium enterprises globally face particular challenges, lacking the resources to rapidly restructure supply chains or navigate complex regulatory environments. The cost of compliance with varying trade rules and documentation requirements has increased substantially.
The Political Economy Dimension
The trade war reflects deeper structural tensions beyond commercial competition. Both nations have embraced economic nationalism, with the US pursuing reshoring initiatives while China advances its “dual circulation” strategy emphasizing domestic consumption alongside international trade.
The Trump administration has framed trade policy as supporting American workers first, imposing reciprocal tariffs to ensure trade policy addresses the national emergency of persistent trade deficits. This approach enjoys bipartisan support, suggesting continuity regardless of electoral outcomes.
China’s response has evolved from purely retaliatory measures to strategic repositioning. The expansion of the Regional Comprehensive Economic Partnership (RCEP) and Belt and Road Initiative represents efforts to create alternative trade architectures less dependent on Western markets. Chinese leader Xi Jinping’s December 2023 visit to Vietnam, agreeing on building a “shared future” between the two countries, exemplifies this diplomatic pivot.
The technology sector has become the primary battleground, with both nations viewing technological leadership as essential to economic and military security. Export controls on semiconductors, rare earth minerals, and artificial intelligence technologies have created parallel technology ecosystems, forcing global companies to choose sides or maintain costly dual operations.
Outlook: Can Globalization Recover?
The evidence suggests we’re witnessing not the end of globalization but its transformation into regionalized blocs. The IMF notes that resolving policy uncertainty could raise global output by 0.4 percent in the near term, with a return to pre-2025 tariff levels adding another 0.3 percent.
However, structural forces suggest the pre-2018 model of hyper-globalization is unlikely to return. The willingness to “break the system” in pursuit of balanced trade, restored industrial diversity, and domestic security indicates a fundamental shift in how major economies view international commerce.
Three scenarios appear plausible for the medium term. The first involves managed competition with periodic negotiations preventing complete decoupling while maintaining strategic rivalry. The second sees accelerated fragmentation into distinct economic blocs with limited interchange. The third, and perhaps most likely, involves a hybrid system where critical sectors decouple while others maintain integration, creating a complex patchwork of cooperation and competition.
For businesses and investors, this new normal requires fundamental strategy adjustments. The era of optimizing purely for cost efficiency has ended, replaced by multi-factor decision-making incorporating geopolitical risk, supply chain resilience, and regulatory compliance. Companies increasingly embrace greenfield investments accounting for over 80% of Chinese outbound FDI transaction value in 2024, suggesting permanent rather than temporary relocations.
The trade war has also accelerated technological innovation as companies seek to reduce dependencies. Automation, artificial intelligence, and advanced manufacturing techniques offer paths to maintain competitiveness despite higher production costs. The IMF estimates that AI adoption combined with trade normalization could boost global output by approximately 1% in the near term.
As we move forward, the key question isn’t whether globalization will survive but what form it will take. The US-China trade war has catalyzed a restructuring that was perhaps inevitable given shifting economic power dynamics and technological capabilities. While the costs are substantial—measured in reduced efficiency, higher prices, and foregone growth—the new system may prove more stable if less optimal than its predecessor.
The emergence of this new normal doesn’t necessarily presage economic disaster. History suggests that periods of trade reorganization, while disruptive, can spur innovation and create unexpected opportunities. The challenge for policymakers and business leaders is navigating this transition while minimizing adjustment costs and maintaining growth momentum.
For the global economy, adapting to this new reality requires accepting that the era of unfettered globalization has ended while working to preserve beneficial economic integration where possible. The trade war’s transformation from temporary dispute to structural feature of the international system marks a historic inflection point whose full implications will unfold over the coming decade.
