From globalization to fragmentation: the economic challenge between the USA and China

Translated by Federico Emanuele

For over half a century, the United States has promoted an international economic order based on free trade and market integration, aiming to consolidate its global leadership. China has been the primary beneficiary of this system: since its accession to the WTO in 2001, Beijing has transformed its economy, becoming the second engine of global growth and Washington's main strategic competitor. Today, however, the scenario is shifting. The first Trump administration ushered in an era of protectionism, and Donald Trump’s return to the White House could mark a new phase of escalation, with even heavier tariffs and increased pressure on allies to reduce dependence on Beijing. But as the U.S. redefines its approach, China is also adapting its strategies. The central question, therefore, is not just who will win the imminent trade war, but whether the Asian region is moving toward a new economic framework in which closed regionalism and fragmentation replace U.S.-led globalization.

For China, the benefits of trade with the United States and the rest of the world have been extraordinary. Since 2001, the Chinese economy has quintupled, establishing itself as the world's second-largest economic power, second only to the United States. Meanwhile, hundreds of millions of Chinese citizens have been lifted out of extreme poverty, transforming the country into an unprecedented engine of development. However, these deep trade ties have also sparked challenges and tensions, fueling economic disputes between Washington and Beijing. The Trump administration, compared to its predecessors, adopted a more aggressive stance, imposing tariffs on hundreds of billions of dollars’ worth of Chinese goods, withdrawing from the TPP, and negotiating the controversial Phase One Agreement with China. With Joe Biden’s arrival in the White House, Washington has intensified measures to counter China’s economic rise. The administration has introduced unprecedented restrictions on the export of advanced technology and has strengthened tariffs in numerous sectors considered strategic.

Since January 20, President Trump has imposed an additional 10% tariff on all Chinese products, justifying it as retaliation against Beijing’s failure to curb the smuggling of fentanyl chemical precursors. This is in addition to a 25% tariff on steel and aluminum imports. China responded with 15% tariffs on coal, gas, and other U.S. goods, restrictions on mineral exports, and the launch of an antitrust investigation into Google. However, Beijing is now less dependent on foreign trade, particularly with the United States. Over the past two decades, the Chinese government has gradually reduced the role of trade in its national economy, focusing on domestic market growth. While in the early 2000s, imports and exports accounted for over 60% of GDP, today that share has dropped to around 37%. Meanwhile, U.S.-China trade has declined, especially in sectors most affected by tariffs and restrictions. Beijing has also strengthened its economic relations with other partners, including the European Union, Mexico, and Vietnam. This restructuring could limit the impact of U.S. trade policies on China’s economy.

If Trump were to introduce further tariffs, it is likely that China’s countermeasures would target sectors where it holds a clear global monopoly, such as minerals, since China’s macroeconomic context makes large-scale retaliation less sustainable. On the other hand, the U.S. has equally powerful economic tools at its disposal. Washington can impose further restrictions on technology exports, which would have devastating effects on Chinese industries and the Made in China 2025 initiative—a plan launched by the Chinese government in 2015 to transform the country into a leader in high-tech sectors. The program aims to reduce reliance on advanced technology imports and develop autonomous production capabilities in key industries such as artificial intelligence, robotics, biotechnology, and semiconductors. Moreover, control over the U.S. dollar, the world’s reserve currency, remains a powerful economic weapon. At the same time, Beijing is already engaged in a tense trade dispute with the European Union, following the EU’s approval of tariffs on Chinese electric vehicles.

Several U.S. partner countries are adopting decoupling or de-risking strategies to reduce their economic dependence on China. However, nations like Japan and India, despite long-standing security concerns about China, do not seem capable of taking concrete steps to curb its economic coercion capabilities. Political relations between Tokyo and Beijing oscillate between rivalry and outright hostility, while economic ties, though strong, are increasingly marked by growing competition. In the past, Beijing has attempted to leverage economic interdependence to gain political concessions, fostering deep distrust toward China within the Japanese government. Australia, South Korea, and Taiwan also face similar threats, both in terms of security and economic coercion. India, on the other hand, sees this scenario as an opportunity to strengthen its manufacturing sector and consolidate its position in the reorganization of global supply chains.

President Trump’s objective appears to be securing concessions on a range of issues not strictly related to trade, from immigration to drug trafficking. Trump also hopes that imposing tariffs will incentivize the return of manufacturing to the United States and reduce bilateral trade deficits. However, the cost of Chinese retaliatory measures is significant: Beijing has responded with a wave of economic countermeasures that risk harming key sectors of the U.S. economy. Even more insidious, however, is the cost of imitation: if the United States—the architect of the rules-based international economic order—begins to selectively choose which rules to follow, other countries might do the same, undermining the credibility of the global system.

In the long run, such policies could erode U.S. prestige in the Indo-Pacific region and facilitate the emergence of closed regionalism, in stark contrast to America’s original strategy of integrating the region into the liberal international order. Paradoxically, this could create new political space for China, despite its continued economic coercion, which still makes it perceived as an unreliable partner. Beijing is actively trying to reshape the regional economic order through initiatives such as the RCEP, AIIB, and the Belt and Road Initiative, strengthening its role as an alternative economic hub to the United States. U.S. strategies, therefore, risk further deepening the dilemma faced by Asian states—excluding China—who are caught between aligning with U.S. security policies and maintaining economic dependence on the Chinese market.

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