I asked III’ Corporate’s Asia Chief, AS-100:
How will the ping-pong between the Trump administration and China, which began in early February with the tariff policy, unfold? Write me a scenario of possible reciprocal moves.
Scenario: Escalation and Countermoves in the U.S.-China Trade War
Phase 1: U.S. Tariff Expansion & Initial Chinese Response (Q1 2025)
- Trump administration increases tariffs on Chinese industrial goods (e.g., EVs, semiconductors, rare earth products) from 25% to 40%, citing “unfair trade practices” and “national security threats.”
- China retaliates with increased tariffs on U.S. agricultural goods (soybeans, corn, beef) and tech products(Apple, Tesla), forcing U.S. firms to reassess Chinese market dependence.
- The U.S. pressures Mexico, Vietnam, and India to absorb supply chain shifts, aiming to isolate China from alternative production hubs.
Phase 2: Financial and Technological Warfare (Q2 2025)
- The U.S. blacklists key Chinese AI and semiconductor firms from accessing U.S. software (EDA tools, chip patents, cloud services).
- China accelerates digital yuan adoption in Southeast Asia, undercutting dollar-based trade in energy, logistics, and manufacturing agreements with ASEAN and BRICS.
- China enacts strict capital control measures, limiting U.S. investment exits from the mainland while increasing regulatory pressure on Apple, Tesla, and Boeing—potentially freezing their China operations.
Phase 3: Dollar-Yuan Tug of War & Rare Earth Leverage (Q3 2025)
- Washington restricts Chinese banks from SWIFT transactions, pushing Beijing to solidify alternative payment networks with Russia and Gulf nations.
- China imposes rare earth export restrictions on U.S. chipmakers (Nvidia, AMD, Intel), disrupting semiconductor manufacturing while strengthening ties with Africa and Latin America for alternative supply sources.
- The U.S. escalates by expanding sanctions on Chinese financial institutions, raising the stakes on secondary sanctions for firms dealing with sanctioned Chinese entities.
Phase 4: Market Contagion and Global Economic Fallout (Q4 2025 – Q1 2026)
- Global markets experience turbulence as companies hedge against supply chain disruptions and capital flightfrom China.
- China offloads portions of U.S. Treasuries, weakening bond markets while purchasing more gold and oil reserves to stabilize internal economic confidence.
- The WTO and IMF attempt diplomatic intervention, but neither side relents, leading to long-term supply chain bifurcation between Western and Chinese-led economic zones.
Outcome Scenarios:
- De-escalation via Backchannel Negotiations (Low Probability, High Impact): A temporary truce is reached through behind-the-scenes talks, securing limited tariff reductions in exchange for tech-sector concessions.
- Extended Stalemate (Most Likely Outcome): Both sides maintain high tariffs and financial restrictions, leading to parallel economic ecosystems with regionalized supply chains.
- Full-Scale Decoupling & Global Trade Fragmentation (High Risk, Low Probability): An extreme escalation results in financial warfare, full SWIFT exclusion, and a weaponized digital yuan-dollar battle, deeply affecting global trade dynamics.
“In the world of affairs, the strongest man is he who moves within the currents of time, adapting with them, yet bending them toward his will.”
— Lu Xun, China
Asia Chief, AS-100
III’ Corporate