Once the cornerstone of a tense but functional relationship, trade and investment between the US and China are now unravelling at an alarming pace. What began as a tariff skirmish under Trump’s first presidency has ballooned into a sweeping economic decoupling with Cold War overtones — and both sides are rapidly broadening their arsenals beyond tariffs, the Wall Street Journal reported.
In less than three months, the two countries have implemented what are effectively trade embargoes against each other. Rick Waters, a former senior US diplomat now at the Carnegie Endowment for Global Peace, warned, “The US and China are in a state of economic decoupling, and there do not seem to be any guardrails… It’s becoming more difficult to argue that we’re not in a new Cold War.”
Beijing prepares for broader retaliation
For Xi Jinping and his leadership team, the latest wave of Trump’s tariffs triggered an all-hands-on-deck response. Beijing has vowed to “fight to the end,” and while it continues to employ traditional tools such as blacklists and export controls — notably on rare earths — experts say it is also preparing to retaliate using more strategic levers.
According to sources familiar with Chinese policy discussions, officials are contemplating using cyber capabilities developed over years of intrusions into US infrastructure. The Wall Street Journal recently reported that Chinese officials tied a series of cyberattacks on ports and utilities to Washington’s support for Taiwan — a signal that economic tensions may soon be overshadowed by broader security threats.
Military tensions and communication breakdowns
Concerns over Chinese military posturing are growing in Washington. Admiral Sam Paparo, head of US forces in the Indo-Pacific, warned in an April 10 Senate hearing of increased Chinese activity near Taiwan — a sign that economic disputes could bleed into military confrontation.
Communication channels between senior leaders are fraying. While Trump has expressed willingness to talk — suggesting Xi call him and encouraging Chinese Foreign Minister Wang Yi to reach out to US Secretary of State Marco Rubio — Beijing has gone quiet, reportedly preferring to engage through trusted intermediaries like former Singaporean Prime Minister Lee Hsien Loong or Saudi Crown Prince Mohammed bin Salman. But no meaningful backchannel has materialised.
Allies caught in a geopolitical tug-of-war
Amid the stalemate, both powers are now actively courting allies. The Trump administration is leveraging its economic might, offering tariff relief in exchange for nations isolating China, barring Chinese goods, and blocking investment — a bid to create a global coalition against Beijing. Trump told Fox Noticias he wants countries to “choose between the US and China.”
Yet building such a coalition is far from straightforward. Many nations, particularly in Asia, remain economically tethered to China. Southeast Asia, in particular, has emerged as a battleground for influence. In a recent diplomatic twist, Vietnamese President To Lam agreed to tariff talks with Trump days before Xi Jinping’s state visit to Hanoi. Though Vietnam issued a joint statement with China pledging closer ties, it offered few specifics — a sign Hanoi is hedging its bets.
China turns to Europe amid US unpredictability
Europe is also in Xi’s sights. Alarmed by Trump’s handling of the war in Ukraine, some European leaders may be open to China’s overtures. In a strategic move, China appointed WTO veteran Li Chenggang as its new chief trade negotiator — a staunch US critic known for denouncing American “unilateral bullying.” His selection signals Beijing’s pivot toward defending the multilateral trade order that Trump has repeatedly criticized.
Technology, blacklists, and the next front
Back in Washington, Trump’s administration is preparing to expand restrictions on Chinese companies. Georgetown professor and former State Department adviser Ryan Fedasiuk said the Commerce Department may soon begin blacklisting subsidiaries of already-sanctioned Chinese firms — dramatically widening the scope of export controls and accelerating decoupling.
“Blacklisting subsidiaries would drastically increase the number of firms subject to US export controls,” Fedasiuk said.
The Cold War playbook is back
What was once a targeted economic dispute is now morphing into a full-spectrum geopolitical confrontation. With cyber threats, military movements, and ideological rivalry joining tariffs on the front lines, experts warn the world is witnessing the most consequential trade war in history.
“This isn’t just about trade anymore,” said Yun Sun of the Stimson Center. “The risk of the trade war expanding to other domains is quite high.”
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
