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The first ten days of April have seen the United States single-handedly rewrite the underlying paradigm for global trade – but while it is fair to say that the methods are extreme, the underlying goal of the policy is not unique to the US.

Indeed, the push to support, and expand, domestic manufacturing through policy intervention is experiencing a resurgence not seen since the 1970s.

Many people believe the COVID pandemic exposed weaknesses in global supply chains. In reality, the pandemic simply accelerated an existing trend of slowing of integration.

Growing concerns around trade wars and risks from climate shock existed prior to COVID with both policymakers and firms rethinking globalisation strategies.

Countries were also becoming concerned about the manufacturing dominance of China and the potential weaponisation of economic activity.

The risks of rising concentration

The expansion of international trade has led to massive efficiencies in production.

But it has also led to concentration of certain sectors in certain regions. Examples include software development in Silicon Valley, semiconductor manufacturing in Taiwan and critical minerals processing in China.

This geographic concentration started to raise concerns for many countries. Reasons include climate events disrupting supply chains, pandemics and increasingly, geopolitical concerns.

In response to the rise in economic concentration, countries as diverse as Japan, South Korea, the European Union, India, Brazil and the US introduced policy actions to promote or return certain critical sectors to domestic production.

Australia’s Future Made In Australia plan is a prime example of this.

Trade disruptions

Even before the Trump tariffs, the US and other countries were alarmed by China’s control over key manufacturing sectors and its associated ability to disrupt trade and commerce.

Australia experienced this first-hand when China imposed significant tariffs on wine and barley in response to Australia’s call for a Covid inquiry.

China’s willingness to use its economic position was demonstrated on Friday when it announced not just retaliatory tariffs, but export restrictions on seven categories of rare earth minerals. These are critical to strategic US sectors affecting companies like Apple and defense contractor Lockheed Martin.

Government support on the rise

This shift to increased economic resilience through self-reliance has led to a big surge in government intervention through industrial policies.

The objective of industrial policy is to target certain sectors in order to change the structure of economic activity within a country. It uses government policy to promote investment in sectors deemed under-served by markets.

While all countries have used some level of industrial policy, historically it was mainly confined to developing economies. It has been used sparingly since the 1970s. Between 2009 and 2017, the total number of industrial policies used by countries was less than 200.

Between 2017 and 2023 the use of industrial policy increased nine-fold. In 2023, there were roughly 2,500 industrial policy interventions put in place with two-thirds introduced by advanced economies. Almost 48% were concentrated in three: China, the EU and the US.

Intervening in markets

Generally, industrial policy has been out of favor with mainstream economists. It is very hard to get right as it relies on an in-depth knowledge of industries as well as an ability to predict the future.

Providing funding for one sector means less funding available for others. This could undermine new technologies or other as-yet unseen opportunities. It involves shifting resources from existing, efficient uses to less efficient uses.

It rarely works. A prime example: the many countries that have spent billions of dollars trying to recreate their own domestic Silicon Valleys with no success.

However, Trump is trying to do just that, on an economy-wide scale, mainly through tariffs. The tariffs announced also imply the US will go it alone. The approach takes fragmentation to a new level, where bilateral negotiations are the name of the game.

Shifting global alliances

Meanwhile the response from other nations such as Canada, Southeast Asian economies and even Europe is to diversify and form new alliances without the US.

Indeed, the Canadian Prime Minister’s first trip overseas was not, as tradition dictates, to the US, but to Europe and the UK, which he dubbed “reliable” partners.

Becoming more isolated and pushing other countries to China may not be what the US intends, but it is happening.

Last week, Japan and South Korea announced a joint strategy with China to promote regional trade. The EU’s trade representative went to Beijing shortly after the tariff announcement where the two nations announced plans to “deepen trade and investment” ties.

The risks of highly integrated supply chains in the face of security concerns, or changes in a trading partner’s domestic policy, have become glaringly clear.

How countries choose to address these concerns, especially through the widespread use of industrial policy, will create further disruption to markets. While it is considered politically expedient for security concerns, this will raise prices and limit choice in domestic markets. As the old adage reminds us, there is no free lunch.

Susan Stone is the Credit Union SA chair of economics at the University of South Australia.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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The intensifying trade war between the United States and China has moved beyond a bilateral economic dispute, evolving into a global geopolitical confrontation with profound implications for East Asia. The economic fallout from escalating tariffs is expected to have wide-ranging consequences, including the restructuring of global supply chains and a realignment of strategic relationships in the region.

Although the US launched the trade war in an effort to curb China’s economic rise, the outcomes thus far indicate a reversal of those goals – strengthening China’s position in global trade, eroding US influence among key regional allies, and accelerating the shift toward a multipolar order in East Asia.

It is time for Washington to pause and fundamentally reconsider its strategy.

Disruption of the post-war global trading order

The US-China trade war now represents the most significant disruption to the global trading system since the formation of the post-World War II liberal economic order. Triggered by the imposition of steep tariffs – up to 125% by the US and 84% by China – the conflict now affects over $650 billion in bilateral trade, encompassing a wide range of consumer and industrial sectors.

And this may be just the opening salvo. No one can say with certainty where both countries will ultimately end up, as neither side appears willing to back down

Initially intended to rebalance trade flows and counter China’s perceived economic aggression, the trade war has instead generated widespread economic uncertainty and strategic dislocation – especially across East Asia.

The World Trade Organization projects an 80% reduction in US-China trade volumes, sending shockwaves through global markets. The OECD has revised its global GDP growth forecasts downward, predicting 3.1% growth in 2025 and 3.0% in 2026. US economic growth is expected to decline to 2.2% in 2025 and farther to 1.6% in 2026, reflecting not only trade-related headwinds but also rising inflation and waning investor confidence.

Tariffs have driven up import costs, particularly in sectors such as electronics, pharmaceuticals and retail. Financial markets have reacted negatively, with major stock indices experiencing notable declines.

Economic forecasts are becoming increasingly cautious, with growing concerns about the possibility of a recession. These trends point toward a heightened risk of stagflation – a troubling mix of economic stagnation and rising inflation.

Multinational corporations have begun reconfiguring their supply chains, shifting some production to other alternative countries. However, these alternatives lack China’s scale, efficiency, and integration, leaving global supply chains in flux and emerging markets vulnerable to further disruptions. The OECD warns that continued fragmentation could inflict lasting damage on global productivity.

China’s resilience and strategic position

Contrary to US expectations, China has not been economically crippled. As of 2024, it remains the world’s leading trading nation, accounting for 14.5% of global exports – far surpassing the United States’ 8.5%. Exports to the United States make up only 12.3% of China’s total exports, which amounted to almost $3.6 trillion.

This underscores Beijing’s strategic diversification and deep integration into global value chains. US leadership may be overestimating the significance of American imports in sustaining the economic strength demonstrated by the Chinese economy.

China supplies the US with critical goods, including semiconductors, rare earth minerals, and pharmaceuticals. Any further restrictions by Beijing in these sectors would have immediate and severe repercussions for US industry.

Strategic implications in East Asia

East Asia is witnessing a quiet but significant realignment. Major US allies such as South Korea and Japan are increasingly drawn toward China due to its economic size and geographic proximity. In 2023, China-South Korea trade reached $310 billion, and China-Japan trade exceeded $330 billion. In contrast, both countries traded only around $230 billion with the United States. This trend underscores a shift driven by economic pragmatism over ideology.

The ongoing trade war has started eroding the credibility of US-led alliances in the region. Participation by South Korea in China-led initiatives such as the Regional Comprehensive Economic Partnership (RCEP) signals a growing tilt toward Beijing.

Economic dependence is translating into diplomatic flexibility, with potential implications for long-standing security alignments. The region may never be the same again.

Should Washington continue with protectionist policies without offering viable economic alternatives, regional allies may begin to hedge their bets. This could result in reduced participation in US-led defense initiatives, joint military exercises, and diplomatic forums – marking a profound transformation in the region’s geopolitical landscape.

The US may be overestimating regional countries’ commitment to shared political values. That bond may not be strong enough to hold them together in the face of mounting economic hardships and rapidly shifting geopolitical dynamics.

US miscalculation and the rise of a multipolar Asia

Instead of curbing China’s rise, the trade war is catalyzing a broader realignment. China’s economic resilience, assertive diplomacy, and expanded global trade ties are accelerating its emergence as a rival superpower. Meanwhile, the US risks strategic overreach and diminishing relevance in a region it once dominated.

The Cold War-era architecture of US leadership is increasingly ill-suited for a world defined by economic interdependence. China sees this confrontation not merely as a trade dispute but as a strategic test of its national resolve. Far from backing down, Beijing is doubling down – confident that it can emerge from the conflict stronger and more globally engaged.

The way forward

The notion that the United States can bring China to its knees through a trade war is outdated. That window closed a long time ago. China is now the world’s largest trading nation – a status it has held for over a decade – and its share of global exports reflects a deeply embedded position within global supply chains.

It is crucial for American leadership to realistically assess the current role of US trade with China in driving China’s continued growth. Washington appears to be stuck in the past, when American investment and trade played a major role in China’s economic expansion. Today, China’s growth is increasingly sustained by diversified global partnerships and domestic innovation.

In 2024, China’s exports to the US accounted for a small portion of its total exports, underscoring its reduced dependence on the American market. On the other hand, the US remains heavily reliant on Chinese imports across critical sectors, from electronics and pharmaceuticals to rare earth minerals and consumer goods. A disruption in Chinese exports would paralyze major American companies and fuel inflationary pressures.

Moreover, China holds the ability to retaliate by targeting key US exports such as agricultural products, aircraft and luxury goods, which would hurt American farmers, exporters, and manufacturers. This could ripple across global markets, destabilize supply chains, and weaken US competitiveness.

In this multipolar landscape, China is no longer a subordinate player. It is a superpower with diversified markets, resilient trade networks, and growing geopolitical reach. The US strategy of using trade as a weapon – originally intended to constrain China – is now ironically enabling its rise.

Given these realities, the United States must fundamentally rethink its trade and strategic posture. Rather than continuing to rely on punitive tariffs, Washington should adopt a strategy of constructive engagement that reflects the complexities of a multipolar, interconnected global economy.

This requires a renewed commitment to work through multilateral trade institutions, ensure fair competition and promote transparency. Simultaneously, the US must lead the formation of inclusive regional trade agreements that offer its allies viable economic alternatives to dependence on China – thereby reinforcing trust and shared prosperity.

At the same time, Washington should deepen its partnerships in the  region by investing in joint ventures in digital infrastructure, green technology and next-generation innovation.

Domestically, the United States must enhance its economic strength by investing heavily in artificial intelligence, semiconductors, clean energy, and workforce development. These sectors will define global leadership in the 21st century, and the US must lead not merely through power, but by setting the pace of innovation.

Ultimately, preserving American competitiveness and credibility requires a comprehensive and forward-looking strategy. The challenge is no longer about winning a trade war with China – it is about whether the United States remains a central architect of the future global order or is gradually forced to cede that role to China

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