President Donald Trump’s rapid-fire trade war has set in motion a commercial rupture without precedent, which is rippling through the global economy in unpredictable and costly ways.
The triple-digit taxes that the president has imposed on Chinese products - and China’s retaliatory measures - are expected to shrink trade between the world’s two largest economies from a recent annual peak of nearly $700 billion to almost nothing.
After more than a quarter-century of a love-hate relationship, the United States and China are on the verge of a commercial divorce. Yet some coveted Chinese products will continue finding their way to American customers via other nations that face lower U.S. trade barriers. And even as direct trade shrivels, the U.S. will remain dependent on Chinese components that are inside products made in countries such as Mexico, Thailand or Vietnam.
The global economy
“We’re entering a new phase, a broader strategic decoupling between our two economies. It’s going to be painful. It’s going to hit both economies. It’s going to hit the global economy,” said Myron Brilliant, a senior counselor at DGA Group, a business advisory firm.
Many U.S. importers will be unable to quickly find alternatives for their Chinese suppliers, leaving them little choice but to pay the tariffs. Those extra costs will show up in higher prices for consumers or will erode profits, cutting into hiring and growth.
Other companies are putting the brakes on operations, as tariff pain spreads across the United States.
Earlier this week, Kim Bradley, chief operating officer for Highline United, a footwear maker in Dedham, Massachusetts, stopped a 20-foot shipping container full of women’s footwear as it was about to be loaded aboard a ship in a Chinese port. Rather than pay a $60,000 tariff bill when it arrived in the United States, she returned it to her factory in Dongguan, China.
With Chinese goods now facing import taxes of 145 percent, the projected tariff exceeded the value of the shoes inside the container and was roughly 10 times what the company normally pays.
“It’s going to be catastrophic for the industry,” she said. “I can’t imagine that the president is going to let this devastation happen.”
Cost increase
There is no way that a wholesaler with modest profit margins, like Highline, could absorb such a cost increase. Even routine import duties stress the company’s cash flow. U.S. Customs officials, for example, automatically deduct import taxes and other fees from Highline’s bank account less than a month after clearing its cargo into the United States. Yet it might be two or three months before Highline is paid by its customers.
Bradley has paused other shipments while hoping for an early trade war resolution. So many companies are canceling their Chinese orders that the shipping line she uses may not operate its next scheduled sailing from the port of Yantian on April 17.
Like most in her industry, Bradley said she has no choice but to buy from China. In the past, Highline has experimented with importing some products from Vietnam. But suppliers there require larger minimum orders than the more flexible Chinese producers.
While she endorses the president’s stated goal of trade “fairness,” she sees little likelihood that footwear manufacturing could return to the United States, as he intends.
“People in the United States don’t want to be making shoes,” she said.
With the company’s fate hanging on diplomatic talks that have not yet begun, Highline last week laid off two longtime employees, including one who had worked for the company for 11 years.
Trump’s sky-high tariffs represent “an extinction-level event” for thousands of small companies, said Steven Lamar, president of the American Apparel and Footwear Association.
Shock waves around the globe
The U.S.-China slugfest will dent growth in both nations and send shock waves around the globe. By year end, the U.S. economy, which began 2025 growing at an annual rate of 2.4 percent, will be almost dead in the water, according to economists from both Goldman Sachs and Oxford Economics.
As China’s factories continue to hum, Chinese goods that would have gone to the U.S. will instead head for Europe and other markets, threatening them with the sort of job-killing shock that battered American workers in the first decade of this century.
China’s retaliation for Trump’s tariffs, featuring its own levies of 125 percent, will make itself felt on American farms and businesses.
Commercial aircraft maker Boeing has roughly three dozen suppliers in China, which produce components for every one of its current models.
Soybean and corn growers are worried about losing Chinese sales after Beijing’s announcement Friday that it had raised its tariffs in response to Trump’s latest move.
Chinese mines dominate global production and processing of exotic rare earth minerals such as gadolinium and yttrium. Earlier this month, the Chinese government announced new export restrictions on seven categories of medium and heavy rare earths.
The share price of GE Healthcare Technologies, which uses the Chinese materials in a contrast agent for MRIs, fell 14 percent in one day following the announcement.
Within a month or two, some U.S. companies may run short of magnets needed to produce electric vehicles.
Elsewhere, consumer electronics companies - or other manufacturers that have signed long-term contracts with Chinese suppliers - will be under the most pressure. China for the past 15 years has exported more laptops, mobile phones and tablets than all other nations combined, according to the Rhodium Group, a New York-based consultancy.
Shifting orders
U.S. companies could shift their orders to Vietnam and India. But adding production capacity there requires 12 to 24 months, according to Chris Rogers, head of supply chain research at S&P Global Market Intelligence. Opening new plants in other countries would take even longer.
Trump said Wednesday that he wants to reach a deal with Chinese President Xi Jinping to ease tensions. But there is little trust between the two sides after years of trade friction and fruitless negotiations.
“I’m not concerned. I think President Xi is a very smart guy, and I think we’ll end up making a very good deal,” the president told reporters.
Rather than a comprehensive agreement, Beijing and Washington should try to rebuild mutual confidence through a series of incremental improvements, according to two business executives who have recently spoken to Chinese officials and spoke on the condition of anonymity to discuss private conversations.
Both sides have reason to favor a deal. On Wall Street, stocks and bonds lost ground last week while China’s economy is struggling amid a hangover from a property bubble. Yet hard bargaining lies ahead.
“Any deal that is going to be acceptable to Beijing is going to need to involve a substantial rolling back of penalties, tariffs, at least to the status quo ante of January 20,” said Scott Kennedy, a China specialist at the Center for Strategic and International Studies. “What they’re most desirous of is predictability and stability.”
The U.S.-China trade war is likely to push the global economy perilously close to recession. Assuming Trump’s 10 percent universal tariff remains in place, and taxes on Chinese goods ultimately settle around 60 percent, the conflict will knock about 0.4 percent off global growth, according to Neil Shearing, chief global economist for Capital Economics in London.
The impact could be more profound if the trade war morphs into a financial battle.
In February, the president ordered his Cabinet officers to identify ways of preventing U.S. capital from financing Chinese technology companies that aid China’s military and intelligence industries.
Among the measures that the presidential memo proposed: evaluating the risks involved in allowing Chinese companies such as Alibaba and Baidu to continue listing their shares on U.S. stock exchanges.
“A shift from trade to financial conflict would be a material escalation and [would] force markets to price in the possibility of financial decoupling,” Rory Green, chief China economist for TS Lombard in London, wrote in a research note Friday.
The open breach between Washington and Beijing comes after both nations spent years trying to reduce their mutual dependence. Under Xi’s “dual circulation” strategy, China has tried to shrink its reliance on foreign inputs. Likewise, both the Biden and Trump administrations have promoted domestic production rather than rely on an adversary like China for critical products such as pharmaceuticals, semiconductors and rare earths.
Severing direct trade links with China, however, does not mean that the U.S. will no longer be vulnerable to Chinese economic coercion. Solar panels from Southeast Asia contain silicon wafers made in China. And U.S. automakers indirectly import four times as much Chinese content as they buy directly, according to research presented at a Brookings Institution conference in 2023.
“We may decouple, but not de-risk,” said economist Brad Setser of the Council on Foreign Relations. “You can’t eliminate all Chinese content.”
As attention turns to the president’s talk of making an unspecified deal with China, CEOs mourn the apparent end of decades of mutually profitable relations. Many companies, including Apple, Tesla and Starbucks, will remain in China to serve Chinese customers. Others have begun shifting their supply chains to locations that will face lower U.S. trade barriers.
No matter what the two leaders manage to work out later this year, the long period of U.S.-Chinese commercial cooperation has ended, according to many who follow the transpacific relationship, including Aaron Friedberg, who advised then-Vice President Dick Cheney in the years after China joined the global trading system.
“We’re in a whole different world,” said Friedberg, a Princeton University professor. “And the nature of the economic relationship between the United States and China is not going to be what it was.”