The new era of global economic warfare – Firstpost

On January 20, Donald Trump took the oath of office as the 47th President of the United States of America. This marks a significant turning point on the world’s biggest political stage. The power equations and the legitimacy across the world are changing. This shift in this surge will breed change in the wave of South Asian politics as well.

Trump’s approach can be viewed as a mix of realist and neorealist principles, prioritising nationalism, the balance of power, and bilateralism over multilateralism. At the same time the constructivist dimensions of his leadership style like identity politics, and populist rhetoric, reshaped the US-China relations during his first term in office.

The US-China relations are often referred to as a case study of the “Thucydides trap”, where the rise of a new power(China) threatens the dominance of the existing hegemon (US). From a realist point of view, both nations are engaged in a zero-sum game for global supremacy. This can be viewed through the recent international competition in the field of technology, electric vehicles, global trade, and China’s recent move in advancing artificial intelligence. It is also evident in the disputes between the Taiwan and South China Sea and the military build-up in the Indo-Pacific. The conflict can be seen as a contest between liberal democracy and authoritarian state capitalism.

While the People’s Republic of China is classified as a developing nation by the World Trade Organization, it is important to recognise that China’s economy significantly outperforms that of many developed nations. Since the interwar period, the US has been the world’s largest economy. With a gross domestic product of $29 trillion, the US retained this position in 2024, followed by China with a GDP of $18 trillion. However, in terms of Purchasing power parity(PPP), China is the world’s largest economy with a PPP-adjusted GDP of $37.1 trillion, and the US holds the second position with a PPP-adjusted GDP of $29.2 trillion. China’s growth as a global economic powerhouse is a major threat to the United States.

According to the Office of the United States of Trade Representative (USTR), America-China trade in goods reached approximately $758.4 billion in 2022, with the US running a trade deficit of over $367.4billion. In 2023 the House of Representatives of the United States voted unanimously to challenge China’s status as a developing nation. This legislation highlights the palpable anxiety in the US about China’s rapid ascent as a major player in the global economy and its increasing sway over international trade.

China’s trade surplus

America’s imports of goods from China rose from about $100 billion in 2001 to about $551 billion in 2024. China’s merchandise trade surplus stood close to $980 billion. China’s biggest export market is the US. In November 2024, China exported mostly to the United States about $47.3 billion with an increase of $3.51 billion, which is about 8 per cent growth. China is the third largest exporting country of the United States. As per the Observatory of the Economic Complexity (OEC), In October 2024 the exports to China were about $13.5 billion, with a decrease in exports to China of $2.54 billion or 15.9 per cent. This trade surplus fuels the US’ perception of unfair trade practices and dependency concerns.

Recalling the Trump 1 tariff diplomacy

In March 2018, under the Trade Expansion Act of 1962, the United States imposed Section 232 tariffs citing national security justification which imposed 25 per cent tariffs on steel and 10 per cent tariffs on Aluminum under section 232 of the Trade Expansion Act of 1962. The primary aim of this move was to reduce reliance on foreign steel and aluminium imports and boost domestic production, increasing steel production by 1.9 per cent and aluminum by 3.6 per cent during 2018 and 2021. China’s most favourite Industries like semiconductors marked a 72 per cent drop in imports. Imports of products subject to Section 301 tariffs dropped from $311 billion in 2017 to $265 billion in 2021.

The most significant declines were seen in semiconductors (-72 per cent), motor vehicle parts (-50 per cent), and furniture (-25 per cent). China retaliated against this act with tariffs targeting US agricultural exports, particularly soybeans, pork, and dairy, aiming to hurt Trump politically by targeting industries in swing states. This forced the US government to provide billions in subsidies to affected farmers. In January 2020, the US and China signed the Phase One trade agreement, where China committed to purchase $200 billion in additional US goods over two years. However, China’s fulfillment of these commitments fell short.

Trump Vs China

Trump’s favourite and most beautiful word in the world is “tariff”. President Trump frequently employs this terminology, which provides insight into his perspective. The strategy involves increasing tariffs and duties on various countries. This is an alarming note for the People’s Republic of China. Trump’s revival is not just a threat to China’s ambitions to conquer the global south, this will give rise to a new trade war. But Trump often changes his mind, and at a time his words hint at the possibility of a trade war, it was a reality during his first term. Last week, Trump came up with a possible means of a trade deal with China.

Recent geopolitical tensions and the start of the trade dispute in 2018 during Trump 1.0, have led to a decline in trade between the US and China. From a dependency theory perspective, the US-China trade interaction is rooted in global inequalities, with developing nations often caught in debt traps through Chinese loans under the BRI or marginalised in US-led trade blocs. Taiwan represents a breaking point where realism dominates. The US sees Taiwan as a key ally in the Indo-Pacific, while China views it as a core territorial issue. Arms sales and military exercises heighten this tension. Neo-realists view the BRI as China’s attempt to reshape the global order by creating economic dependencies.

The US, in response to China’s interplay, supports initiatives like the Blue Dot Network to counter China’s influence. Liberalism is also challenged by China’s increasing role in global institutions like the UN and WHO which upsets the West. Under Trump’s “America First” ideology, China was recognised as the principal rival to American economic and geopolitical dominance. This antagonistic relationship was guided by a mix of transactional diplomacy, economic nationalism, and a neo-realist strategy, which sought to disassociate the US from China’s economic influence while countering its growing power in the Indo-Pacific region.

Trump 1.0 condemned multilateralism and Trump 2.0 may also witness his populist ethos. Trump’s former presidency saw China expanding its influence in Panama, a region historically within the US sphere of influence, through investments and infrastructure linked to the Belt and Road Initiative. Panama’s diplomatic shift from Taiwan to Beijing in 2017, also highlighted China’s growing foothold, raising concerns about US strategic vulnerabilities, including the Panama Canal.

China’s investment in AI technology also raises eyebrows in the West. China recently announced its own AI chatbot “Deep Seek”. This is a looming threat to the West which now dominates the AI industry globally. The Deep Seek chatbot has recently emerged following former President Trump’s announcement in which he referred to OpenAI’s new investment project as the largest infrastructure initiative in history.

President Trump delivered a speech addressing the House of GOP, stating that the “Deep Seek” is a wake-up call to the industry. This development poses a significant challenge to the United States’ leadership in artificial intelligence and has implications for President Trump’s agenda. This Chinese move is signalling the upcoming Trump vs China competition on the world’s great political stage. Trump says he will tariff foreign production of chips, semiconductors, Aluminium, steel, copper and pharmaceuticals. The upcoming days in this play will be Trump versus China. The stage is set for the forthcoming trade contest between Trump versus China. Trump 2.0 would likely amplify efforts to counter China’s presence in the Americas, focusing on economic and security strategies to maintain U.S. dominance in the Western Hemisphere.

The US-China relationship in Trump 2.0 is going to define the shape of the global order in years to come amidst an epoch defined by technological competition and geopolitical rivalry. This antagonistic fight between the two gigantic economies in the world is more than a trade deficit and tariffs. This competition can be observed as a contest for commanding the modern economy, artificial intelligence, electric vehicles and strategic supply chains. China’s GDP is at $18 trillion and the trade surplus is closer to $980.Trump’s tariff diplomacy and upcoming policies may increase China’s temper.

China can counter this move driven by the advancement of AI, dominance in the production of rare-earth minerals and through its economic scale and technological momentum. Both nation’s strategies reflect realism and economic nationalism. Both nations’ interdependence is epitomised by the US goods and services trade with China totalled an estimated a $758.4 billion in 2022 making this rival fight more complex. However, the bigger implication remains that with the US using initiatives such as the Blue Dot Network in pushing back against China’s own Belt and Road Initiative, which of these moves is testimony to the consolidation of American supremacy or a move into hastening a multipolar world order? The result will set the path not just for US-China relations but for the future of global governance, economic models and technological change in the 21st century.

The stakes could hardly be higher for the international community, as these two nations’ policies ripple across the world, influencing allies, adversaries, and emerging powers alike.

The writer is a policy analyst and independent researcher in public policy, international relations and global governance. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.