On 16 April 2025, the Vivekananda International Foundation (VIF) held a meeting titled “US-China Contention and Trump Tariffs” where a comprehensive and thought-provoking briefing was delivered, focusing on the current state and future trajectory of U.S.-China trade relations, particularly in light of renewed tariff escalations under the Trump administration. Framing the issue within a broader strategic context, it was argued that what began as a targeted trade war has now evolved into a protracted and multifaceted rivalry that reflects the structural shifts in the global order. Following is the summary of the discussion.

In recent times, there has been an unabated escalation of geopolitical tensions, and the competition between Washington and Beijing is no longer confined to economics alone. While trade and tariffs remain central, the rivalry has deepened into strategic realms involving technology, supply chains, and global influence. Unlike in previous instances, this round of U.S. tariff measures has been more sweeping, with duties exceeding 145% on key imports from China. China's response, far from passive, has matched the escalation step for step, raising tariffs and deploying a range of countermeasures.

What distinguishes the current phase of the tariff war is China’s preparedness. Drawing from its experience in the earlier phase of trade hostilities between 2017 and 2018, China has taken substantial measures to insulate itself from future shocks. It has reduced its dependence on the U.S. market, redirected its exports toward ASEAN, the Global South, and Latin America, and expanded domestic technological capabilities to counter U.S. restrictions. Despite these efforts, there exist significant economic vulnerabilities confronting China till date, including an ongoing real estate crisis, slowing productivity, rising debt, and weak domestic demand.

These developments are transforming the international trade order itself - trade diversion on an unprecedented scale is underway, with studies projecting that nearly $300 billion worth of Chinese exports may be rerouted to non-U.S. markets such as the EU, ASEAN, and Africa by 2026. Simultaneously, China is actively investing in overseas manufacturing facilities to circumvent direct exposure to U.S. tariffs. These adjustments are not just economic but strategic, aimed at recalibrating China’s global trade posture.

China is simultaneously attempting to rebrand itself as a champion of globalization and a defender of a rules-based order, in contrast to what is increasingly perceived as an parochial and unpredictable U.S. trade policy. Yet, this narrative faces credibility challenges, given China's own market practices and the anxieties it provokes among other global players. Nevertheless, the erosion of U.S. leadership in multilateral institutions and its retreat from traditional alliances has created openings that China is seeking to exploit, particularly in regions like Central Asia and Africa, where its economic footprint continues to expand.

This raises questions about the impact of the trade war on stock markets in China and the U.S., the redirection of exports to South Asia, and the future of American corporate investments in China. In this context, it must be noted that while China’s equity markets may not always reflect economic fundamentals due to state interventions, the bond market more accurately signals investor sentiment, which remains wary. Furthermore, U.S. firms are gradually scaling back operations in China, amid anxieties about political risk and strategic exposure, with anecdotal evidence of firms such as Microsoft beginning to withdraw or reduce their presence. The recent suspension of rare earth and critical mineral exports by China can be identified as a significant latent threat to the U.S., with potentially far-reaching consequences for its high-technology and defense sectors. It is thus, suggested that, despite the short-term volatility and disruption, Trump’s aggressive posture may yield long-term strategic advantages by slowing China's dominance in select industries.

Although the trade war is primarily economic, it carries significant strategic implications. China has, over the past few years, built an extensive toolkit for retaliation, including sanctions regimes and export controls on critical minerals. The control over rare earth elements, cobalt, lithium, and graphite, resources indispensable to global manufacturing, gives China considerable leverage. Although these measures have not yet caused visible disruptions, their latent threat is a potent instrument in China’s hands.

The discussion also reflected on the lessons India could draw from China’s response. It was pointed out the value of strategic foresight, diversification, and capacity building, especially in critical sectors like technology. Indian policymakers were urged to study China’s systemic efforts at reducing vulnerability and to think proactively about how India might position itself in the shifting trade and economic environment.

The meeting concluded with an acknowledgment of the complexity and long-term nature of the U.S.-China trade war. While China has so far managed to navigate the pressure with a blend of resilience and strategic messaging, its internal economic crisis may constrain its ambitions. On the U.S. side, there appears to be a lack of coherent long-term strategy beyond the imposition of tariffs. In this context, a Chinese scholar was quoted: extreme tariffs present an opportunity, but one that rides on a dangerous wind. This underscored that the world is witnessing a historic reconfiguration of trade, power, and strategic alignments - and that these shifts demand both caution and creativity from policymakers everywhere.