US-China Trade War

The US-China trade war is a long fight between the world's two biggest economies, fought with tariffs, export bans and other trade weapons. It began in 2018, when the United States put heavy import taxes on Chinese goods, and China hit back with its own tariffs. Since then it has moved in cycles: sharp escalation, then a pause or truce, then fresh conflict. It matters for India because every move between these two giants changes prices, supply chains and trade pressure across the world.

What is a trade war?

Think of two big shops in the same market. One shop puts a heavy "entry fee" on goods coming from the other. The second shop does the same in reply. Both hope to hurt the other more than themselves. In trade, this "entry fee" is a tariff, a tax on imported goods. When two countries keep raising tariffs on each other in turn, it is called a trade war. Usually both sides lose something, because their own buyers must pay more.

Why did it start?

The US had several complaints against China:

• A huge trade deficit: the US buys far more from China than it sells to China. In 2018 the US goods trade deficit with China was over $400 billion.
• Forced technology transfer: US firms said that to do business in China, they were pushed to share their technology with Chinese partners.
• Theft of intellectual property, such as designs, patents and trade secrets.
• State subsidies: the Chinese government gives cheap loans and support to its companies, helping them sell cheaply abroad.

Behind these economic complaints lies a bigger worry. Many in the US see China as a rival for global leadership in technology and military power. So the trade war is also a technology and security contest.

Where did it come from?

China joined the World Trade Organization (WTO) on 11 December 2001. After this, its exports to the world grew very fast. In August 2017, the US Trade Representative (USTR) began an investigation into China's trade practices under Section 301 of the Trade Act of 1974. This law allows the US to act against unfair foreign trade practices.

On 6 July 2018, the US put a 25% tariff on $34 billion of Chinese imports. This date is seen as the official start of the trade war. China quickly placed matching tariffs on US goods such as soybeans. In September 2018, the US added a 10% tariff on about $200 billion more of Chinese goods, later raised to 25%.

The Phase One deal (2020)

On 15 January 2020, the two sides signed the Phase One trade agreement. China promised to buy at least $200 billion more of US goods and services over 2020 and 2021, compared with 2017 levels. This covered farm goods, energy, manufactured goods and services. In return, the US cut some tariffs. But most tariffs stayed in place, and China bought well short of what it had promised.

How did it widen into technology?

From 2022, the fight moved to technology. In October 2022, the US put strict export controls on advanced computer chips and chip-making tools going to China. An export control is a rule that stops a country's companies from selling certain goods abroad. In May 2024, the US raised Section 301 tariffs on some Chinese goods, including a 100% tariff on Chinese electric vehicles.

China replied with its own weapon: control over rare earths, the special minerals needed for magnets in electric cars, wind turbines and defence equipment. China dominates their mining and processing.

The 2025 escalation

In 2025, the conflict grew much sharper:

• In early 2025, the US put a 20% tariff on Chinese goods, linked to the flow of the drug fentanyl.
• In April 2025, the US announced "reciprocal tariffs" on many countries. With China, the two sides kept raising rates in reply to each other. US tariffs on Chinese goods reached 145%, and China's tariffs on US goods reached 125%. At these rates, trade between them almost stopped.
• In April 2025, China also put export controls on seven heavy rare earth elements.
• In May 2025, talks in Geneva led to a 90-day pause. The US cut its tariff to about 30% and China to 10%. This pause was later extended to November 10, 2025.

The Busan truce (October 2025)

On 30 October 2025, the US and Chinese leaders met in Busan, South Korea. They agreed on a one-year truce, called the Busan Agreement:

• The US cut its fentanyl-related tariff on China from 20% to 10%, bringing its overall tariff on Chinese goods from about 57% to about 47%.
• China paused its newest rare earth export controls for one year.
• The US paused its rule that extended export blacklists to affiliates of listed Chinese firms, and both sides paused new port fees on each other's ships.
• China agreed to resume buying US soybeans.

How has the legal picture changed?

On 20 February 2026, the US Supreme Court ruled in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) does not allow the President to impose tariffs. This struck down tariffs based on that law, including the fentanyl and reciprocal tariffs. The US then turned to other laws. As of mid-2026, the older Section 301 tariffs on China (ranging from 7.5% to 100% on different goods) remain in force, because they rest on a different law.

Commonly confused concepts

• Tariff vs export control: A tariff is a tax on goods coming in. An export control is a ban or licence rule on goods going out. The US mostly used tariffs and chip export controls; China used tariffs and rare earth export controls.
• Section 301 vs Section 232 vs IEEPA: Section 301 (Trade Act of 1974) targets unfair trade practices of a country. Section 232 (Trade Expansion Act of 1962) allows tariffs on imports that threaten national security, such as steel and aluminium. IEEPA (1977) is an emergency law for sanctions; the Supreme Court held in 2026 that it cannot be used for tariffs.
• Trade truce vs trade agreement: A truce only pauses new measures for a fixed time. A trade agreement sets lasting, legally binding rules. The Busan Agreement is a truce, not a full trade deal.
• Decoupling vs de-risking: Decoupling means cutting economic ties almost completely. De-risking means reducing dangerous dependence (for example, on one supplier of chips or rare earths) while still trading.

India's position and the stakes for India

• Opportunity ("China plus one"): Many global firms want a factory outside China as a backup. India has tried to attract them through schemes like Production Linked Incentives (PLI). Electronics and mobile phone assembly for the US market is one visible gain.
• Dependence on China: India still imports a lot from China, especially electronics, machinery, chemicals and inputs for medicines. In 2024-25, India's trade deficit with China was about $99 billion.
• Dumping risk: When Chinese goods face high US tariffs, they may be diverted to other markets, including India, at very low prices. This can hurt Indian industry.
• Pressure shifts: When the US and China agree to a truce, US pressure can move to other countries. The Russian oil tariff threat of 2026 is an example: a truce protected China, leaving India more exposed.

Issues, criticism and the way forward

• Costs for everyone: Studies show that US buyers and firms paid most of the cost of US tariffs through higher prices. Farmers on both sides also lost markets.
• Weakening of the WTO: Both sides took one-sided actions outside WTO rules. The WTO's Appellate Body (its appeals court) has not worked since December 2019, so disputes cannot be settled fully.
• Supply chain shocks: Rare earth and chip controls showed how one country's control of a key input can be used as a weapon.
• Uncertainty: Short truces, frequent deadlines and changing laws make it hard for businesses to plan.
• Way forward for India: Experts suggest that India should diversify its sources of critical minerals and energy, deepen trade deals with many partners, build domestic manufacturing, and protect its "strategic autonomy", meaning the freedom to choose its own partners based on national interest.

Concepts to Know

• Tariff: A tax a country charges on goods brought in from another country. It makes imported goods costlier for local buyers.
• Trade deficit: When a country buys (imports) more from another country than it sells (exports) to it. The gap is the deficit.
• Intellectual property (IP): Ownership rights over creations of the mind, like inventions (patents), brand names (trademarks) and designs.
• Subsidy: Money or support a government gives to a company or sector, so it can produce or sell more cheaply.
• Rare earth elements: A group of 17 metals used in powerful magnets, electronics, electric vehicles and defence systems. They are not truly rare, but hard and polluting to extract and process.
• Supply chain: The full chain of steps and suppliers needed to make a product, from raw material to the final item in a shop.
• Dumping: Selling goods in a foreign market at a price lower than in the home market, or below cost, often hurting local producers.
• World Trade Organization (WTO): The global body, set up in 1995, that makes and enforces the rules of international trade.