A New Era of US-China supply chain war

What began as a tariff dispute between the US and China has rapidly evolved into a supply chain war in which both sides sought to exploit single-source chokepoint vulnerabilities. These events revealed asymmetric vulnerabilities on both sides: China over critical minerals and the US over tech and finance. The result is a new bilateral dynamic Evan Medeiros describes as a fragile stability resting on shifting political calculations and intensifying competition.

 

 Since the end of the Cold War, US-China interactions were largely an exercise in the mutual shaping of the perceptions, policies, and behaviors of the other. For the United States, this meant trying to elicit more and better cooperation from China in addressing shared challenges, paired with efforts to deter Beijing's more disruptive policies. Washington did so by further pulling Beijing into the international system, by directly negotiating with Beijing, and by shaping the strategic environment in Asia to limit China's choices.

Beijing had a similar approach but was more focused on constraining US actions that it perceived as undermining China's domestic and international interests. The dominant feature of Beijing's strategy was to counter perceived US external containment and domestic destabilization of China. In the early 2000s, Beijing also initiated a major military modernization campaign.

As China grew stronger economically and militarily, and as its global footprint expanded, bilateral interactions became more dense, complex, and ultimately competitive. Washington had facilitated China's integration into — and its substantial benefit from — the US-led global economic and trade order. But Beijing used that integration to resist US power more often and to build quasi-alternatives to it. As the first decade of the 21st century passed, US and Chinese interests diverged in more arenas and with greater intensity. Notably, economic ties shifted from broadly complementary to broadly competitive as other differences emerged in the relationship.

These bilateral forces eventually converged around 2018 to produce a new era: strategic competition. The Trump administration, with its more hawkish views on China, gave expression to accumulating US frustrations. It launched the first trade war and technological competition against China in 2018. Following the 2020 election of Joe Biden, US commitment to competition intensified. That was the starting point as both countries headed into the events of 2025 — an exceptional year in US-China relations, marked by tariff escalation, brinkmanship over critical minerals, and the establishment of a fragile truce.

There are several notable features of this opening stage of strategic competition that persist today. First, the competition is broad in scope from day one, covering military affairs, economics, technology, and ideas about governance. Second, a sustained shift in domestic forces in both countries from supporting engagement to encouraging competition. Third, the mutual adoption of more coercive and confrontational strategies toward the other side. Fourth, the narrowing of communication channels. And fifth, its diverse global consequences, from disrupted supply chains to the formation of new alliances.

Analyzing the US-China trade war in 2025

Phase 1: Upping the ante (January–April 2025)

The Trump administration began the trade war soon after Inauguration Day in January 2025 and gradually built toward a bigger confrontation on so-called "Liberation Day," April 2. This first phase had two core attributes. First, the administration was supremely confident in the US economic position and leverage over China. This was based on the view that China needed the United States more than the United States needed China. Second, the Trump team had a large, diverse, and exclusively competitive agenda with China. The team came into office with a litany of problematic Chinese behaviors that it sought to change and wanted to use economic tools — mainly tariffs — to do so.

The trade war began barely two weeks after Donald Trump's inauguration, triggering two months of action-reaction dynamics, which revealed much about emerging US-China dynamics and Beijing's approach. First, Beijing was struggling to understand what Washington wanted from China. Chinese scholars and former policymakers appeared confused about Trump's priorities for US-China ties, and limited official communication in these early days did not help. Second, China's responses to US actions were prompt and reciprocal but, importantly, also proportional, highlighting the Chinese government's focus on controlling escalation. Finally, Beijing prioritized ensuring that US trade actions would not disrupt the Chinese economy, so it began helping exporters find new markets and subsidizing domestic demand.

Phase 2: Escalation spiral (April–June 2025)

The second phase of the trade war opened with a bang when, on April 2, Trump raised or leveled "reciprocal tariffs" on more than 180 economies — what the White House called "Liberation Day." For China, this level was 34%, in addition to the existing tariffs from the first Trump term and the 20% fentanyl-related tariff imposed in February. China responded quickly and both sides continued raising tariffs to levels that functionally stopped all trade: 145% on the US side and 125% on the Chinese side.

Beijing and Washington soon signaled a desire to de-escalate and agreed to meet for talks in Geneva. They announced a suspension of tariffs and China to remove controls on exports of rare earths, though the precise commitments by both sides remain unclear. The situation grew complicated again in mid-May when the US prohibited American and foreign companies from using, selling, transferring, financing, or servicing Huawei's Ascend chips. China viewed this as a violation of the Geneva agreement and did not resume rare earth exports. The United States retaliated by clamping down on the export of semiconductor software and aerospace components.

Both sides held a second round of talks in June and reached a framework agreement. China agreed to resume exports of rare earths in exchange for the United States lifting restrictions on chokepoint items and technology. The trade war had morphed into a supply chain competition focused on chokepoint vulnerabilities.

Phase 3: Probing and testing the boundaries (June–October 2025)

The third phase of the trade war was no less volatile than the first two but had its own momentum, logic, and dynamics. The period began with relative stability before rapidly deteriorating. Following previous talks, officials agreed to meet in Stockholm to discuss extending the 90-day tariff pause. Both sides readily agreed to another 90-day extension.

However, a new cycle of escalation and de-escalation was soon initiated by successive waves of US regulatory action. China's response was unlike past patterns in breadth and depth; it was designed to send a strong message and to teach Washington a lesson. For example, on 9 October, China announced an intention to expand control on Chinese-origin rare earths used in manufacturing globally, after the US Commerce Department adopted the Affiliates Rule, which effectively meant that any majority-owned subsidiary of a foreign company on the Entity List would also be covered by the list's prohibitions.

Each cycle of action-reaction during this phase risks severe consequences but had limited practical effect on both economies. A phone call between Trump and Xi on 19 September effectively ended the escalatory cycle as both leaders agreed to meet during the annual Asia-Pacific Economic Cooperation summit in Busan. The resulting framework agreement saw China agree to purchase US agricultural goods and resume rare earth exports. In exchange, the US paused Section 301 tariffs on maritime logistics and shipbuilding. This phase solidified a competition for leverage where both sides sought to exploit the vulnerabilities of the other while minimizing their own. The core dynamic became a race for time to reduce exposure and gain advantages.

Phase 4: Setting a new floor (November 2025 to March 2026)

Phase 4 began after the October 2025 Busan summit, where a "handshake deal" between Trump and Xi stabilized relations. The agreement featured the United States suspending the Commerce Department's Affiliates Rule for one year in exchange for China suspending its rare earths export control regime. Additionally, the US extended reciprocal tariff reductions and lowered fentanyl-related tariffs from 20% to 10% for increased Chinese cooperation. China committed to purchasing 12 million metric tons of soybeans in late 2025 and at least 25 million annually through 2028. Both leaders agreed to reciprocal visits in 2026, with up to four meetings potentially occurring that year, according to senior US officials.

Beyond bilateral deals, the US expanded domestic supply diversification efforts, for example by partnering with Vulcan Elements and ReElement Technologies in November 2025 to build a rare earth magnets supply chain. In January 2026, G7 ministers agreed on price floors and carbon tariffs on Chinese rare earth exports. In a similar move, in December 2025 the State Department launched "Pax Silica" — a 10-member coalition aiming to build resilient supply chains independent from China.

Implications for US-China relations

Economics and technology have emerged as the central arenas of US-China competition, as events in 2025 highlighted the foundational importance of these sectors to national competitiveness. This is not a classic contest for relative advantage, but a competition for leverage where both sides seek to identify and exploit vulnerabilities while minimizing their own. Central to this is "positional power", or who commands a controlling position in global networks and technology supply chains.

The events in 2025 were less a traditional trade war and more a supply chain war. Beijing's weaponization of rare earth controls fundamentally changed the bilateral dynamic, reshaping it in ways that will persist for years. The core US-China dynamic now is a "race for time" to reduce exposure: China is sprinting to reduce reliance on Western semiconductors, while the US attempts to reduce its exposure to China's monopoly on rare earth production. China's 15th Five-Year Plan specifically calls for extraordinary measures to break through these chokepoint vulnerabilities.

The competition has revealed asymmetrical vulnerabilities. As of today, US vulnerability to China is broad and its leverage is narrow, while China's vulnerability is narrow and its leverage is broad. This has produced a fragile stability one analyst described as "mutually assured economic disruption," but this equilibrium rests on shifting political decisions about costs rather than structural constraints.

The two nations have clearly transitioned to a new phase of competition where questions of technological strengths and vulnerabilities have moved to the forefront. China enters this phase better prepared, having developed new economic weapons and re-engineered its domestic economy for resilience. Conversely, the US faces the monumental challenge of coordinating industrial policy across government and private industry. Finally, the arenas of economic and technological competition will not continue to be compartmentalized from the other arenas, namely diplomatic and military competition. The degree of spillover among these arenas will be far greater and more likely than during the US-Soviet rivalry simply due to the elevated baseline level of bilateral and global interdependence. Future projections for US-China competition are sobering.