Trade tensions between the world's two largest economies, the US and China, peaked in 2025 after Donald Trump returned to the White House. The US president's actions are quite understandable, as a trade war is an opportunity to weaken an opponent by damaging its economy.
In May this year, Washington and Beijing agreed to a 90-day suspension of tariffs, and in the summer they agreed to extend the trade truce for another 90 days (until November 10). However, the situation escalated after China announced on October 9 that it would introduce new controls on rare earth metals starting November 8. Trump's reaction was immediate. He called the PRC's decision “an unprecedented move” and said that in response, the US would not only impose 100% tariffs on Chinese products starting November 1, but would also tighten export controls on all critical software.
What are the consequences of the escalating trade conflict for both countries? Who will come out on top? Could the US damage its own economy? Finam explored these and other questions with experts.
A protracted saga
Donald Trump's desire to “Make America Great Again” knows no bounds, while China is the US's main rival, which is why the confrontation between these two powers is constantly escalating. The day after taking office, Trump threatened to impose a 10% tariff on Chinese imports due to fentanyl shipments from China. But the threats turned into action. The tariffs came into effect on February 1, and on February 10, Beijing imposed tariffs of 15% on imports of American coal and LNG, as well as 10% on crude oil and certain types of cars.
On March 4, the US doubled tariffs on all Chinese imports, bringing them to 20%, but the Chinese authorities did not wait long to respond, announcing retaliatory tariffs of 10-15% on US agricultural exports. Throughout April, the parties repeatedly raised tariffs on a number of goods. In particular, on April 2, Trump exacerbated global trade tensions with large-scale “Liberation Day” tariffs, and on April 8, tariffs on all Chinese imports increased from 34% to 84%. By mid-April, US tariffs on Chinese imports had risen from 84% to 125%. China took mirror measures—the country's authorities raised tariffs on US imports to 125%, calling Trump's tariff strategy a “joke.” In addition, China announced in April an immediate restriction on imports of Hollywood films, and an US export license is now required to sell Nvidia's H20 chips in China.
Trade negotiations in Geneva on May 10-12 helped ease trade tensions. As a result, the parties agreed to a 90-day suspension of tariffs. The temporary truce meant that US tariffs on Chinese goods would be reduced from 145% to 30%, and Chinese tariffs on American goods from 125% to 10%. Later, after two days of talks in Stockholm at the end of July, US and Chinese officials agreed to extend the tariff truce, and on August 11, its term was extended for another 90 days, until November 10.
In September, China and the US actively negotiated on TikTok, and on September 19, they announced progress in reaching a framework agreement, agreeing to meet in person in South Korea at the APEC summit, which will take place on October 31-November 1, to discuss trade, China's purchase of soybeans from the US, the conflict between Russia and Ukraine, and a number of other issues.
However, recent events have jeopardized the implementation of all previously reached agreements. On October 9, China announced that it intends to expand export controls on rare earth metals from November 8, including five new medium and heavy rare earth elements, as well as to strengthen control over semiconductor users, which will further strengthen the country's influence and dominance in the field of critical minerals that play a key role in the energy transition. The Chinese authorities explained that they were acting lawfully during a period of increasing military conflicts on different continents, but Trump remained dissatisfied, accusing China of taking an aggressive stance.
The American leader said that in response, the US will not only impose 100% tariffs on Chinese products from November 1, but will also tighten export controls on all critical software. Trump also threatened to explore the possibility of banning the supply of spare parts for Boeing to China.
According to Bloomberg, China has called on the US to abandon threats of imposing tariffs and return to the negotiating table. “Threatening high tariffs at every turn is not the best way to build relations with China,” said the Chinese Ministry of Commerce, clarifying that the controls imposed on exports of rare earth metals are not an export ban. Applications that comply with the established rules will be approved. Trump, in turn, noted that a meeting with Chinese President Xi Jinping in two weeks at the APEC summit in South Korea now seems pointless, although he did not cancel the planned trip.
Consequences and risks
The statements made by China and the US at the end of last week alarmed the international community, but the reality is unlikely to be too harsh. According to investment banker and author of the bitkogan channel Evgeny Kogan, the position appears to be as follows: we will threaten the Chinese with higher tariffs and put pressure on them, but in reality it is better to avoid a new tariff spiral. “Today, the market is confident that there will be no escalation — even if Trump raises tariffs on China, they will quickly come to an agreement,” the expert emphasizes.
Olga Belenkaya, head of macroeconomic analysis at Finam, notes that the new round of the US-China trade war came as an unpleasant surprise to markets, which had expected that the leaders of these countries would reach a final agreement on a trade deal at the APEC summit, which had been in the works for several months. However, it became clear last week that something had gone wrong.
Dmitry Plekhanov, an analyst at the Institute for Comprehensive Strategic Studies, believes that in the trade and economic confrontation between the US and China, both sides continue to move up the escalation ladder, which has already become one of the elements of the negotiation process. "The parties are not ready to make concessions that could be perceived as weakness. At the same time, China is trying to respond with mirror measures to any restrictions imposed by the US. In response to the US administration's decision to impose tariffs on Chinese ships, the Chinese authorities have established a special port fee for American ships. In response to restrictions in the technological sphere, China is using the supply of important raw materials and strategic resources as leverage against the US. Since May of this year, China has suspended purchases of soybeans from the US, and now restrictions are being imposed on the supply of rare earth metals," the expert emphasizes.
According to Plekhanov, by gradually raising the stakes in the trade war, the parties are trying to soften the negotiating position of the opposing side under the influence of the deteriorating economic situation. But so far, the economies of both the US and China remain resilient to trade restrictions and sanctions. China's exports continue to grow (+6.1% in January-September), and although inflation in the US has risen in recent months, it remains below 3%.
Against the backdrop of no visible negative consequences of the trade war for the economy at the macro level, the most noticeable effect is the separation of the two largest global economies. For example, China's exports to the US fell by almost 30% compared to 2022, while shipments to ASEAN countries grew by 19% over the same period, to Latin America by 14%, and to Africa by 32%. The US financial market is no longer a significant source of investment for Chinese companies, which has given new impetus to the development of Hong Kong as an international investment center, while China is increasingly actively building its own cross-border payment infrastructure based on the yuan," the expert noted in response to questions from Finam.
When it comes to the impact of possible new tariffs on the Chinese economy, which, taking into account past tariffs, could reach a total of almost 140%, it is enough to recall the April consensus forecast, which suggested that with tariffs at 145%, China would lose 2% of GDP annually during Trump's presidential term. This is according to Roman Lukyanchikov, an analyst at Freedom Finance Global. "However, given that China has been successfully increasing its exports to other countries over the past six months, this figure should already be less than 2%. In addition, in response to US tariffs, China will stimulate domestic consumption, which should lead to economic recovery in the medium term," the expert believes.
In the event of an escalation, China may also impose retaliatory tariffs on US goods. However, in monetary terms, the US exports 3.5 times less goods to China than it imports, so the effect on the US economy may be more mitigated. Potential actions by China pose more of a strategic and political risk (such as the possible cancellation of the TikTok deal) to the current US administration," Lukyanchikov believes.
Olga Belenkaya, in turn, notes that if Trump's tariffs come into force, then, first, they will hit bilateral trade between the US and China even harder, as the tariff for China will already be 130%, which is comparable to the maximum value of 145% that was introduced in April but did not last very long. "Based on past experience, China will respond with similar measures, supplementing them with non-tariff restrictions. Already, according to the latest data, China's exports to the US have fallen by 27% (year-on-year). However, China has so far managed to keep its exports in positive territory by redirecting supplies from the US to other regions – Europe, Southeast Asia, and Africa. Although this may be achieved at the expense of lower margins, as the US market is a premium market. The US risks a collapse of the market for cheap consumer goods, electronics, and supplies of critical materials for the defense industry. Therefore, at first glance, the US is now more vulnerable to a trade war with China, although both sides will suffer," the expert says.
According to Belenkaya, another important consequence is the possible disruption of production and logistics chains in semiconductor manufacturing, on which the production of cars, AI servers, etc. depends. These chains, which include ASML Holdings, are mainly distributed between China, Taiwan, Europe, and the US, and their disruption, according to the expert, will make it impossible to produce chips for the aforementioned industries in a timely manner, which could harm the entire global economy.
"The direct impact on Russia is minimal, but in the event of a crisis in the global economy, demand for raw materials may suffer. On the other hand, Russia could use this negotiating impasse to expand its exports of rare earth metals. We believe that the leaders of the US and China will most likely try to avoid such negative consequences and resolve the acute problems at the upcoming APEC summit. This is indicated, in particular, by the softening of the tone of the US administration on Sunday," Belyenkaya concluded.
