The "New Cold War?": 2016-present

Early in his presidency, Donald Trump pursued a confrontational trade strategy with China, aimed at securing trade concessions. His approach included: (1) labeling China as a currency manipulator (which the U.S. Treasury briefly did in 2019 before reversing the decision), (2) addressing intellectual property theft and forced technology transfers, (3) urging China to end export subsidies and improve labor and environmental standards, and (4) implementing tax reforms, including reducing corporate tax rates to boost U.S. manufacturing. However, after these measures failed to elicit the desired concessions from China, Trump imposed tariffs on over $360 billion worth of Chinese goods, not $550 billion as initially stated. In retaliation, China placed tariffs on over $110 billion of U.S. products.

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Throughout his presidency, Trump's focus on trade with China shifted, covering issues such as the trade deficit, intellectual property theft, Huawei, TikTok, and more. Much of the ongoing negotiations were marked by inconsistent progress and public statements on Twitter, reflecting Trump's personal involvement in the process.

The trade war had significant effects on the U.S. economy, including the loss of an estimated 300,000 jobs. Tariffs acted as a regressive tax on imports, with American consumers and businesses bearing much of the cost. Research from the Federal Reserve Bank of New York and Columbia University found that U.S. companies lost at least $1.7 trillion in stock value due to the tariffs. While Trump succeeded in reducing the trade deficit with China—from a peak of $419 billion in 2018 to $311 billion in 2020—this did not reduce the overall U.S. trade deficit. The U.S. global trade deficit actually grew to $679 billion in 2020 from $481 billion in 2016, a 41% increase. This rise was driven by broader economic factors, particularly a persistent imbalance between U.S. spending and savings. While the tariffs reduced direct imports from China, they led to increased imports from other countries in the global supply chain, such as Vietnam, Mexico, and Thailand, limiting the shift toward domestic production.

The trade war also had substantial repercussions for the Chinese economy. The U.S. tariffs increased the cost of Chinese exports, reducing their competitiveness in the American market. This contributed to a slowdown in China’s economic growth, as business uncertainty and global supply chain disruptions added pressure. Chinese firms in technology and agriculture were particularly affected—tech companies faced higher costs for U.S. components, and agricultural exports like soybeans plummeted due to retaliatory tariffs on U.S. goods.

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In the U.S., businesses and consumers faced rising costs for imported goods, particularly in industries heavily reliant on Chinese imports, such as electronics and machinery. U.S. agricultural producers, including soybean and pork farmers, also suffered from reduced access to the Chinese market, leading to financial difficulties. The trade war increased market uncertainty and affected investment decisions, contributing to volatility in financial markets. While there were some short-term benefits, such as increased domestic production in certain sectors, the overall economic impact was marked by rising costs and market instability.

By the end of 2020, U.S. officials characterized the relationship with China as one of "strategic competition," and some commentators referred to it as a "new Cold War." However, this analogy has limitations. (1) Unlike the ideological rivalry of the Cold War, China does not seek to impose its political system globally in the same way the Soviet Union did. (2) The U.S. and China are far more economically interdependent than the U.S. and Soviet Union ever were, with extensive trade, educational, and cultural exchanges complicating the possibility of a purely adversarial relationship akin to the Cold War.