US-China Trade War and Global Economic Implications

The ongoing trade war between the United States and China has escalated . Recently, the US imposed tariffs of 145 per cent on Chinese imports. China retaliated with its own tariffs of 125 per cent on US goods. This standoff has raised concerns about the future of global trade and economic stability.

Impact on China’s Economy

China’s export-driven sectors are facing severe challenges. The loss of reliable access to the US market is detrimental. Tariffs have caused demand for Chinese products, particularly in high-tech industries, to plummet. Despite a GDP growth of 5.4 per cent in early 2025, analysts predict that the effects of tariffs will soon hinder economic performance. Manufacturing activity is already contracting. Structural issues such as industrial overcapacity and an ageing population complicate the situation further.

Global Trade System Under Strain

The trade war has destabilised the global trading system. The US has sidelined the World Trade Organization and adopted a transactional approach to trade. This shift has weakened multilateral norms and encouraged protectionism worldwide. In response, regional trade agreements like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are gaining momentum. However, these regional arrangements cannot replace the scale of global trade.

Risks of Economic Fragmentation

There are serious risks associated with the ongoing economic fragmentation. The potential for a Kindleberger Trap looms large. This scenario suggests that without a leading power to provide stability, the global economy could face systemic collapse. Historical lessons from the Great Depression highlight the dangers of a lack of leadership in maintaining a stable trading system.

Geopolitical Tensions and Taiwan

The trade war is exacerbating geopolitical tensions, particularly concerning Taiwan. The Chinese Communist Party’s legitimacy is tied to the unification with Taiwan. Recent statements from Taiwanese leaders have intensified these tensions. Military exercises by China serve as a warning rather than a prelude to conflict. However, the ongoing trade tensions could push Beijing to take drastic measures.

Role of Collective Leadership

China’s current focus is on domestic issues rather than global leadership. However, it can still contribute to shaping the international environment through cooperation with other regions. A multi-polar and collaborative system is essential for sustaining global public goods. This approach could encourage the US to engage more constructively in global affairs.

Path Forward for Global Order

The future of global stability depends on nations working together. Exploiting the current disorder may provide short-term advantages but could lead to long-term instability. A rules-based global order must be restored through cautious and cooperative efforts.

Questions for UPSC:

1. Examine the implications of the US-China trade war on global economic stability.
2. Discuss the role of regional trade agreements in mitigating the effects of global trade tensions.
3. Analyze the potential consequences of the Kindleberger Trap on international relations and trade.
4. Critically discuss the significance of collective leadership in addressing global economic challenges.

Answer Hints:

1. Examine the implications of the US-China trade war on global economic stability.

1. The US-China trade war has led to tariffs, disrupting trade flows and market access.
2. China’s export-driven sectors are facing challenges, leading to a contraction in manufacturing and potential GDP slowdown.
3. Global supply chains are strained, affecting economies dependent on Chinese manufacturing and exports.
4. Increased uncertainty in the global trading system could lead to reduced investment and economic growth worldwide.
5. Potential geopolitical tensions may arise, further destabilizing international relations and economic cooperation.

2. Discuss the role of regional trade agreements in mitigating the effects of global trade tensions.

1. Regional trade agreements like RCEP and CPTPP provide alternative markets and reduce dependency on the US market.
2. They encourage economic cooperation among member countries, potentially increasing trade and investment within the region.
3. However, these agreements cannot replicate the scale or efficiency of global trade systems.
4. Regionalism may help buffer economies against the shocks of protectionism but lacks the predictability needed for exporters.
5. Such agreements can also signal a shift towards a more multipolar global trade landscape.

3. Analyze the potential consequences of the Kindleberger Trap on international relations and trade.

1. The Kindleberger Trap suggests a lack of leadership can lead to systemic collapse in the global economy.
2. Without a stabilizing power, trade tensions could escalate into broader geopolitical conflicts.
3. The absence of coordination may result in fragmented trade systems and increased protectionism.
4. Historical precedents, such as the Great Depression, highlight the dangers of neglecting global economic governance.
5. Failure to address these issues could lead to long-term instability and hinder international cooperation.

4. Critically discuss the significance of collective leadership in addressing global economic challenges.

1. Collective leadership promotes collaboration among nations to address global economic issues effectively.
2. It helps create a stable, rules-based international order essential for trade and investment.
3. China’s engagement with other regions can support a multipolar system that balances US influence.
4. Cooperative efforts can mitigate the adverse effects of unilateral actions and encourage economic stability.
5. Ultimately, a united approach may encourage the US to re-engage constructively in global affairs.