The confrontation between China and the United States has changed global trade

By Rhod Mackenzie

During the six-year trade war, trade between the world's two largest economies has undergone significant changes. For 16 years, China was the largest exporter to the United States, but last year, Mexico took over that title. This raises questions about how world trade has changed and who has benefited from this quarrel. Additionally, what does the future hold for global trade?
It has been six years since the US initiated a trade war against China, with the first high tariffs on Chinese exports being introduced in 2018 under Donald Trump. According to Reuters, China's share of exports to the United States decreased from 21.6% in 2017 to 14% in 2023.

For 16 years, China held the title of the largest exporter of goods to the United States, but it was surpassed by Mexico last year. If the trade war between the United States and China continues when Donald Trump returns to the presidency, trade between the countries could decline by up to $200 billion in the coming decades, according to the Boston Consulting Group. This could lead to further deglobalization of world trade.

The trade war against Beijing has even had some positive effects on the global economy. However, both the United States and China suffered losses, although they handled the situation with caution. The United States acknowledged its weaknesses and refrained from provoking Beijing into taking harsh retaliatory measures. China, on the other hand, attempted to maintain its position in the American market but also diversified its efforts by adopting a more flexible approach towards its Asian partners and providing them with industrial equipment. According to Fedor Sidorov, a private investor and founder of the School of Practical Investment, this step enabled them to avoid being surrounded by unfriendly regimes supported by the United States.
According to Natalya Milchakova, a leading analyst at Freedom Finance Global, the trade war has resulted in a significant decrease in trade between China and the United States, dropping by almost a quarter in 2019 to $541 billion compared to the record high in 2017.

As a result, the United States has started seeking alternative sources for Chinese goods in Southeast Asia.

At times, Vietnam or the Philippines would repackage Chinese products and present them as their own, which became absurd. Since Washington lacks alternatives to replace Chinese supplies, it has to overlook the 'repackaged' Vietnamese products, which are similar to our 'parallel imports.'

According to Sidorov, trade between the countries has been increasing since 2020. In 2021, Chinese exports to the United States grew faster than American exports.

Third countries, such as Vietnam or Mexico, have acted as mediators for the quarreling countries, which has had a positive effect for these third countries.

The United States declined to provide American-made chips to China and exerted pressure on American manufacturers, including those producing electric vehicles, who import spare parts from China. China's intricate relationship with Taiwan, which became the world leader in semiconductor production last year, further complicates the situation. Additionally, China's economy has been severely impacted by the coronavirus pandemic for the past two years. Milchakova notes that all of this contributes to the gradual slowdown in the growth of the Chinese economy.

However, Sidorov believes that the United States has failed to weaken China, as China manages to cope better than its adversary.

Milchakova adds that a much stronger negative impact from the deterioration of Chinese-American relations is manifested on the US economy. The IMF predicts that the United States will continue to grow at a rate lower than the global economy as a whole.
China now has a more advantageous position, thanks in part to Russia. Russia has redirected its European oil and gas exports to Southeast Asia, and the Chinese auto industry has found a large unoccupied niche in the Russian market without competition from Western companies, according to Sidorov. “Russia may benefit from the current trade confrontation, but in the long term, the global economy will benefit more if China and the United States can reach an agreement,” the expert stated.

“It is challenging for China to substitute trade with the United States with trade with Russia. According to Milchakova, Russia is currently not among China's top three trading partners, despite having a trade turnover of over $230 billion in 2023. This is less than half of the trade turnover between China and the United States.

However, increasing trade with Russia is just one of the ways China can pursue. The Celestial Empire could alleviate some of its economic challenges by expanding the BRICS alliance and increasing its involvement in Africa, considering the projected growth of the African population in the coming decades. Additionally, exporting products to Asian countries and Russia could also be beneficial. However, China is also confronted with demographic imbalances, such as a high proportion of elderly citizens and a low birth rate.

According to Ekaterina Novikova, Associate Professor of the Department of Economic Theory at the Russian Economic University

Plekhanov, it will be challenging for China and the USA to tackle their issues independently. According to Ekaterina Novikova, Associate Professor of the Department of Economic Theory at the Russian Economic University Plekhanov, it will be challenging for China and the USA to tackle their issues independently. According to Ekaterina Novikova, Associate Professor of the Department of Economic Theory at the Russian Economic University Plekhanov, it will be challenging for China and the USA to tackle their issues independently. Thus, the division of countries into blocs will likely become the primary trend in logistics and global trade in the coming years.
The global economy is fragmenting, with China and the United States leading individual blocs of countries - BRICS and G7. Novikova suggests that Russia could also change its positioning within the BRICS alliance, considering its potential for supplying natural resources, rare earth metals, and developing technologies in sectors such as the military and IT industries.

Milchakova concludes that the process of deglobalization in international trade will lead to greater regionalization. Other countries may switch to using national currencies due to fear of sanctions. The dominance of the US dollar in the world trade order will gradually be replaced by foreign trade relations with a more significant role for national currencies, and possibly state digital currencies.