US–China trade tensions flare again – why it matters to India & the world

Threatening a steep hike in tariffs, US President Donald Trump said: “It has just been learned that China has taken an extraordinarily aggressive position on trade by sending an extremely hostile letter to the world, stating that they were going to, effective November 1, 2025, impose large-scale export controls on virtually every product they make, and some not even made by them. This affects all countries, without exception, and was obviously a plan devised by them years ago. It is absolutely unheard of in international trade, and a moral disgrace in dealing with other nations”.

“Based on the fact that China has taken this unprecedented position, and speaking only for the U.S.A., and not other nations who were similarly threatened, starting November 1, 2025 (or sooner, depending on any further actions or changes taken by China), the United States of America will impose a tariff of 100% on China, over and above any tariff that they are currently paying. Also, on November 1, we will impose export controls on any and all critical software,” Trump said.

US–China trade tensions inflationary

Ajay Srivastava, former Indian Trade Service officer and founder of the think tank GTRI, said Beijing’s export control—which states that any product containing more than 0.1 per cent China-origin rare earths, or produced using Chinese refining or magnet-making technology, will require Beijing’s export approval—will impact everything from F-35 fighter jets to EV motors and wind turbines, as China controls 70 per cent of global rare-earth refining capacity.

“Prices of EVs, wind turbines and semiconductor parts are expected to rise, while the US will try to ‘friend-shore’ its mineral supply chains to Australia, Vietnam and Canada. China, meanwhile, is likely to redirect supplies towards its non-Western partners to strengthen alternative industrial networks. Given the strategic importance of rare earths to US industry, Washington may soon have little choice but to reach a new deal with Beijing. Unlike the US, which often acts before weighing economic consequences, China appears more deliberate and better prepared,” Srivastava said.

He said there could be a ripple effect globally as an escalating trade war could trigger a price surge in the US. “Trump could struggle to contain inflation and production costs. His tough-on-China strategy risks backfiring—hurting US consumers and undermining his broader economic agenda. For India, the message is clear: no deal with the US is ever final. The much-publicised US–China ‘Phase One’ trade deal of 2025, which capped US tariffs at 30 per cent and China’s at 10 per cent, has already been overtaken by the new 100 per cent duty order. India must negotiate carefully and on equal terms, ensuring reciprocity and preserving strategic autonomy, rather than relying on shifting US promises,” he said.

“New Delhi should focus on building self-reliance in critical technologies and minerals, insulating its economy from future trade shocks while leveraging its neutral position to strengthen ties with both Western and BRICS economies,” Srivastava added.

US–China preparing for a grand bargain

Experts said that the measures announced by China could be a negotiating strategy ahead of the now unlikely Trump–Xi meeting at the APEC Summit, as much of the export control announced by China would depend on its implementation.

A report by Japan-based MUFG Research said that China had significantly expanded its export controls on rare earths and other critical minerals, but many of these measures only come into effect in November or December and could be used in part as negotiation leverage ahead of the expected Trump–Xi meeting at the APEC Summit.

“We think these measures are potentially very impactful depending on how they are enforced, and markets have not fully digested them, including the possible implications for global supply chains, geopolitics, and how the US could eventually respond,” the report said.

The report added that many questions remain unanswered, as it is unclear how China can effectively enforce its export controls extra-territorially in practice. “In addition, it is also unclear how the combination of these measures could spill over into global supply chains, and how the US may respond in reaction to these new announcements, which could exacerbate any potential supply chain disruptions,” the report said.

US–China trade is what matters the most

According to trade experts, global trade tensions are on the rise—but US–China trade is what really matters because of overcapacity and lack of demand in China.A Rhodium Group research report said that weakness in Chinese demand for imported goods is a major concern for global trade, as over the past two decades China’s move up the global value chain was expected to create massive demand for low value-added manufactured goods.

“This underpinned expectations of industrial development in emerging economies. That assumption is now undermined by China’s weak domestic demand and the growing gap between its manufacturing exports and imports. This gap is by far the largest in the world, and almost an order of magnitude larger than that of the worst years of trade imbalances in Germany, Japan and South Korea,” the report said.

No other country has achieved the same level of global dominance across product categories since the early 1970s, the report added, noting that such dominance is more significant now than in previous decades, when trade represented a much lower share of global goods production and consumption.

Trade economists said that Chinese exports have caused an erosion of middle-income jobs in the US and the West. India’s imports from China have grown at a much faster pace than from the rest of the world. Goods imports from China surged from $10.87 billion in 2005–06 to $61.71 billion in 2015–16. Dependence on China has grown so much that imports from China surpassed a record $100 billion in 2023–24.