By Annie Tseng
Since 2018, beginning with the first Trump Administration’s aggressive trade policies, US-China trade tensions have escalated to reshape global trade, supply chains, and economic alliances. To explore the broader impact of the US-China trade conflict on global trade, it is instructive to analyze the shifting economic dynamics. Understanding how Taiwan and other countries have adapted to these shifts provides valuable insights into the evolving global trade landscape, and offers strategic considerations for how Taiwan can leverage the situation to strengthen its economic position.
The evolution of the US-China trade conflict
2018-2020: Tariffs and the Initial Fallout
The US-China trade conflict began in 2018 when the Trump Administration cited unfair trade practices, intellectual property (IP) theft, and a growing trade deficit as the reason behind imposing sweeping tariffs on Chinese imports. The first wave of tariffs targeted USD 50 billion worth of Chinese goods and escalated to over USD 360 billion by 2019. China retaliated by introducing tariffs against US products, negatively impacting American agriculture and manufacturing. In January 2020, China and the United States signed a Phase One Trade Agreement, which required China to increase its purchases of US goods by USD 200 billion, strengthen IP protections, and open its financial markets to American firms. However, China only fulfilled about 58 percent of its commitments. With global supply chains strained by tariffs, the COVID-19 pandemic exacerbated these trade disruptions. Lockdowns and factory shutdowns in China and elsewhere contributed to shortages of essential goods, including medical supplies and semiconductors, further complicating trade recovery efforts.
2021-2023: Strategic decoupling and a tech war
The Biden Administration maintained Trump-era tariffs while shifting toward economic and technological decoupling, enforcing export controls on semiconductors, artificial intelligence (AI), and quantum computing alongside scrutiny of Chinese inbound investments. Export controls on chips were intended to curb China’s access to advanced semiconductors essential for AI and military applications. In response, China ramped up domestic chip production and restricted exports of critical minerals crucial to US and European technology firms. Meanwhile, geopolitical tensions—China’s crackdown on Hong Kong and ambiguous stance on the Russia- Ukraine war—strained China’s global trade relationships. Companies began reassessing supply chain dependencies, shifting operations out of China to India, Vietnam, and Malaysia.
2024-2025: Geopolitical shifts and protectionism
By 2024, the US-China trade conflict had evolved into a broader geopolitical contest, reshaping global trade. The Biden administration, coordinating with the European Union (EU), tightened trade policies and began raising tariffs on Chinese steel, aluminum, electric vehicle batteries, solar cells, and semiconductors. In retaliation, China restricted exports of gallium and germanium, key materials for semiconductor and defense technologies, while strengthening trade ties with the Global South. In December 2024, China introduced a zero-tariff policy for the 43 least-developed countries in Africa and Asia, likely in an attempt to expand its economic influence.
Following Trump’s inauguration in 2025, his administration imposed a new 10 percent tariff on Chinese imports, escalating economic tensions over trade imbalances, IP concerns, and supply chain security. The United States intensified scrutiny of Chinese firms, investigating the new AI model DeepSeek for potential export control violations and pushing to ban TikTok on national security grounds. Meanwhile, China remains focused on economic self-sufficiency and expanding partnerships with the Global South to counterbalance US and EU trade protection measures.
The New Trade Order: Changing global alliances
Europe’s position
The US-China economic conflict is forcing Europe to reassess its trade dependencies. Rising far-right politics and the ongoing Russia-Ukraine war have pushed the EU toward more defensive trade policies like anti-dumping measures on Chinese goods and tighter controls on high-tech investments, aligning with US efforts to curb China’s economic influence. In 2023, despite China remaining the EU’s second-largest trading partner with total trade volume reaching EUR 739 billion, bilateral trade declined by 14 percent compared to 2022, reflecting efforts to diversify supply chains and reduce reliance on Chinese goods.
However, a recent policy shift where the United States aligned with Russia in United Nations votes on Ukraine has created divisions within NATO and raised concerns in Europe about the United States’ long-term reliability. This uncertainty can push the EU to balance economic ties with China against pressure to align with US trade policies, reinforcing a shift toward economic realignment.
Indo-Pacific realignment
India and Vietnam have benefited the most from the US-China trade conflict and ongoing decoupling, attracting foreign investment as companies seek alternatives to China. As shown in Figure 1, both countries have experienced the highest trade growth with the United States, demonstrating their rising importance in global supply chains. In East Asia, Taiwan and South Korea have also emerged as critical trade partners for the United States in the technology and electronics sectors. Japan—primarily reliant on the auto industry—has seen slower trade growth. However, Japan’s efforts to revitalize its semiconductor industry signal potential shifts in its trade dynamics with the United States.
Regional agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) have also reshaped Asia’s trade networks. CPTPP has enhanced trade liberalization among its member countries by eliminating tariffs on 95 percent of goods, while RCEP has strengthened trade flows across Asia by harmonizing rules of origin, simplifying customs procedures, and increasing investment flows between China, Japan, South Korea, and ASEAN economies. The US-China trade conflict has exposed the World Trade Organization’s (WTO) limitations in resolving disputes, leading both the United States and China to favor bilateral negotiations and unilateral measures.
North American trade tensions
The United States, Canada, and Mexico remain integrated under the United States-Mexico-Canada Agreement (USMCA). However, the US-China trade conflict has accelerated supply chain shifts, driving companies to relocate production to Mexico—although concerns persist over Chinese firms using Mexico to circumvent US tariffs. President Trump’s 2025 tariffs—25 percent on most imports from Canada and Mexico, and 10 percent on Canadian energy products—aim to address illegal immigration and fentanyl trafficking and to serve as a border enforcement tool. While Trump agreed to a 30-day pause after Canada and Mexico pledged to enhance border security, implementing these tariffs risks significant economic disruption.
Taiwan’s role in the evolving trade conflict
By 2024, Taiwan had become the United States’ seventh-largest trading partner, with a 7.1 percent annual trade growth rate. However, as Taiwan-US trade grows, so does the trade deficit. As shown in Figure 2, the United States’ trade deficit with Taiwan grew from USD 9.8 billion in 2010 to USD 74 billion in 2024.
Taiwan and the United States conduct extensive cooperation in the semiconductor and tech sectors. As technology takes center stage in the US-China economic rivalry, Taiwan’s strategic importance continues to rise. However, Taiwan’s growing reliance on the US market poses risks, especially regarding changes in tax and tariff policies. In January 2025, President Trump proposed a 100 percent tariff on imported semiconductors from the island. If implemented, this could significantly raise costs for US consumers and industries reliant on Taiwan chips, disrupting the global semiconductor supply chain while straining US-Taiwan economic relations.
Conversely, while Taiwan’s semiconductor dominance provides the United States with a reliable supply chain, instability in the Taiwan Strait also poses a risk for US firms dependent on Taiwan’s semiconductor production. Taiwan Semiconductor Manufacturing Company Ltd. (TSMC, 台灣積體電路製造股份有限公司) recently announced a USD 100 billion investment in chip plants, advanced packaging plants, and an AI research and development (R&D) facility in Arizona, adding to its existing investment of USD 65 billion. President Trump suggested these investments could help TSMC avoid tariffs, aligning with broader efforts to diversify its manufacturing footprint and reduce reliance on Taiwan. However, this US-Taiwan cooperation also challenges China’s technological ambitions. The relocation of semiconductor manufacturing capabilities could impede China’s access to advanced chips, pressuring it to bolster domestic semiconductor development.
Implications for Taiwan
As Taiwan continues to navigate its economic relationship with the United States, it must proactively strengthen trade cooperation, enhance supply chain resilience, and solidify strategic partnerships. The US-Taiwan Initiative on 21st-Century Trade serves as a framework for improving regulatory alignment, strengthening trade facilitation, and enhancing labor and environmental standards. Meanwhile, the United States-Taiwan Expedited Double-Tax Relief Act, which remains under consideration in the US Congress, presents an opportunity for Taiwan to advocate for its full enactment and push for broader tax relief measures to encourage cross-border investment.
As the United States reinforces its Indo-Pacific alliances, Taiwan is well-positioned to leverage its economic and technological strengths to secure more favorable trade agreements and attract long-term investment. To maintain its competitive edge, Taiwan must expand its export markets, accelerate innovation, and reinforce its leadership in semiconductors and high-tech industries. With global supply chains shifting and geopolitical tensions rising, Taiwan must strategically leverage its economic significance to secure long-term trade stability and enhanced competitiveness.
The main point: The US-China economic conflict has reshaped global trade, driving shifting alliances, supply chain reconfigurations, and intensified competition, particularly in semiconductors. Taiwan, at the center of these changes, has strengthened its economic ties with the United States but confronts trade imbalances, geopolitical risks, and evolving US policies, requiring strategic adaptation to ensure long-term stability.
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