The Impact of the US-China Trade War The Restructuring of Global Supply Chains

The US-China trade war, which began in2018, has had a profound impact on the global trade system. This is not merely a shift in tariff policies but a major restructuring of global supply chains. In this context, how the US and China respond, how global industrial structures evolve, and whether Australia can seize opportunities amid these changes are all important topics worth exploring.

In this article, we will discuss:

The main causes of the trade war and its systemic background.

The strategic competition between the US and China in there structuring of supply chains.

The trade war’s impact on the global economy, particularly its ripple effects on Australia.

How Australian businesses, especially small and medium-sized enterprises (SMEs), can find growth opportunities in this changing landscape.

 The Origins and Evolution of the US-China Trade War

The US-China trade war began in 2018 when the US government imposed tariffs on Chinese goods, citing "trade imbalances" and "intellectual property protection" as key concerns. In response, China implemented retaliatory measures. This trade conflict quickly escalated, leaving a lasting impact on global supply chains.

Key Milestones:
✅ 2018:The US imposed tariffs on $34 billion worth of Chinese goods, prompting China to introduce reciprocal countermeasures.

✅ 2019:The US escalated the conflict by imposing a 25% tariff on an additional $200billion worth of Chinese goods.

✅ 2022:The Biden administration maintained the tariffs and expanded export controls onhigh-tech products such as semiconductors.

✅ 2025?:US-China relations are expected to remain tense, with potential further adjustments to tariffs and supply chain strategies.

While the immediate triggers of the trade war were "trade deficits" and "intellectual propertydisputes," the deeper underlying causes lie in the evolving global supply chain dynamics and the structural economic needs of both countries.

The Causes of Trade Conflict: A SystemicIssue, Not a Sudden Event

Changes in Global Supply Chains as the Root Cause of the Trade War

The trade war is not merely a dispute over tariffs — it is part of a broader restructuring of global supply chains. As China upgrades its industries and the US pushes for manufacturing reshoring,competition between the two nations in the global market has intensified.

China’s Manufacturing Upgrade: In the past, China primarily produced low-value-added goods. However, it is now advancing into high-tech industries such as semiconductors, industrial automation, and advanced manufacturing, increasingly challenging the US’sdominant position.

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US Manufacturing Reshoring: Through policy incentives, the US government is attempting to bring back manufacturingin key sectors such as semiconductors, electric vehicle batteries, and critical raw materials to reduce reliance on China.

The restructuring of global supply chains is not only reshaping the economic landscape of both countries but also intertwining with their respective domestic economic challenges, making the trade conflict increasingly inevitable.

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China’s Overproduction Problem

1997 Asian Financial Crisis: As external demand declined, China mitigated its overcapacity issue through large-scale infrastructure projects. This wave of infrastructure development also laid thefoundation for a surge in Foreign Direct Investment (FDI) into China in 2001.

2014 Economic Slowdown: The real estate boom that emerged in 2016 became a new driver of economic growth, absorbing much of the excess production capacity.

Post-2020 Real Estate Market Adjustment:As the property sector slowed down, excess capacity had fewer outlets. To sustain economic growth, China has been pushing for high-end manufacturing and expanding exports.

However, this shift towards an upgraded export structure has placed China in direct competition within high-value-added industries on the global stage, posing a direct challenge to US economic interests.

 ‍‍The Hollowing Out of US Industry and Income Inequality

The Rise of Finance and High-Tech Sectors: Returns on capital have significantly out paced returns on labor, leading to wealth concentration among a small elite and widening income inequality.

Long-Term Impact of Manufacturing Outsourcing: The decline of traditional manufacturing jobs has prompted the US government to use trade policies to encourage reshoring, aiming to rebuildindustrial competitiveness.

Labour Market Polarisation: High-value jobs in artificial intelligence, software, and finance are on the rise, but they require specialised skills that are inaccessible to many workers. Meanwhile, mid-to-low-skill manufacturing jobs have declined, leading to uneven economic development across different regions.

Given these challenges, the US government has strong incentives to implement policies that support the reshoring of strategic industries such as semiconductors and clean energy. These measures aim to reduce reliance on foreign supply chains and strengthen domestic manufacturing capabilities.

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The Impact of the Trade War: NegativeEffects on Both Economies

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Impact on the US Economy

Slower GDP Growth: The trade war increased import costs, leading to reduced business spending. According to estimates from the Peterson Institute for International Economics, by the end of 2019, the US-China tariff war had already caused a 0.3% loss in US GDP. In the long run, this loss could reach 1.3%.

Rising Inflation: Higher import prices led to increased consumer costs, with the prices of some electronics and furniture rising by more than 10%.

Decline in Manufacturing and Agricultural Employment: Increased production costs and reduced orders forced businesses to cut jobs, while US agricultural exports suffered significant losses.

Impact on the Chinese Economy

Slower GDP Growth: Before 2018, China’sGDP growth rate remained at 6.8%, but by 2023, it had slowed to 5%.

Decelerating Export Growth: The slowdown in export growth significantly weakened the profitability of export-oriented businesses.

Obstacles in the Tech Sector: US export controls have severely impacted the development of China’s semiconductor industry.

Impact of the Trade War on Key Industries and Products

Electronics and Mechanical Manufacturing: Following the tariff increases, China’s exports of electronic components and telecommunications equipment to the US declined by more than 25%.

Automotive Industry: Sales of American-made vehicles in the Chinese market plummeted by 90%, prompting Chinese automakers to accelerate expansion into European and Southeast Asianmarkets.

Agriculture and Food Industry: US soybean exports to China dropped by 50%, while American pork, cotton, and wine also saw a significant decline in their market share in China.

Long-Term Trends of the Trade War

If the trade war persists, direct trade between the US and China may experience slow growth or even stagnation. However, trade with third-party countries is on the rise. For example:

The US is reducing imports from China, shifting its supply chains towards Mexico and Vietnam.‍

China is decreasing imports from the US, increasing its purchases from Southeast Asia, Australia, and Brazil.

This trend indicates that while the two major economies are reducing their interdependence, it also create sopport unities for third-party countries, positioning them as potential beneficiaries of the shifting trade landscape.

Opportunities for Third-Party Countries:Unexpected Winners of the Trade War

The US-China trade war has led to a reduction in direct trade between the two countries, with many transactions being replaced by third-party nations. Some countries have capitalised on this shift, expanding their exports to either the US or China and emerging as beneficiaries of the trade war.

✔ Mexico: Benefiting from the United States-Mexico-Canada Agreement (USMCA), Mexico has quickly filled the gap left by Chinese products in the US market, with significant growth in exports of automobiles, electronics, and manufactured goods.

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✔ Vietnam: As an alternative supplier for electronics, textiles, and footwear, Vietnam has seen rapid growth in exports to the US.

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✔ Southeast Asia (Malaysia, Singapore): Malaysia’s semiconductor industry has gained from the restructuring of global supply chains, while Singapore has expanded its market share in finance and high-end manufacturing.

Australia’s Opportunities and Impact

So far, Australia has experienced limited disruption from the US-China trade war and, in fact, has found unique opportunities amid the shifting global trade landscape. While the US has imposed tariffs on steel and aluminium, Australia’s steel and aluminium exportsto the US only amount to $200–300 million, making the direct impact relatively minor. On the other hand, despite Australia’s significant trade relationship with China, the Chinese economy—though affected by the trade war—has not faced a severe downturn. Instead, China has ramped up large-scale infrastructure investments to sustain economic growth, which has driven higher demand for ironore, benefiting Australia’s mining exports.

Beyond this, the trade war has also prompted China to diversify its energy and agricultural imports, opening up new opportunities for Australia’s liquefied natural gas (LNG) and agricultural exports.

✔ LNGExports: As China reduced LNG imports from the US, Australia emerged as its primary supplier. Australian LNG exports to China increased from 23.45million tonnes in 2018 to 78 million tonnes in 2024, securing a dominant position in China’s LNG import market.

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✔ Agricultural Exports: As a major global agricultural exporter, Australia has capitalised on the trade war to access new market opportunities. With China imposing tariffs on US agricultural products, Australia became one of China’s preferred suppliers due to its high-quality standards and reliable supply chains. In particular, dairy products and grains have benefited, as Australia’s reputation for quality and stability has provided a competitive edge.

Overall, Australia has not suffered significant set backs from the trade war. Instead, its trade structure has allowed it to adopt a balanced strategy. While Australia has maintaineda trade deficit with the US—amounting to $13.296 billion in the first eight months of 2024 — it has simultaneously strengthened its position in the global supply chain. By leveraging its resources and agricultural strengths, Australia has not only maintained stable exports to the US but has also expanded its market share in China. This approach has helped Australia avoid overdependence on either side while ensuring long-term economicstability.

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Opportunities and Challenges forAustralian SMEs

While Australia’s large corporations have significantly benefited from resource exports, small and medium-sized enterprises (SMEs) also have opportunities to capitalise on shifting global markets. However, to truly gain from these changes, SMEs must proactively respond to market demands, leverage government support, and adapt their strategies to the evolving international trade landscape.

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• SMEs in agriculture and food production—particularly those in dairy, wine, and grain industries — have strong potential to expand their international market share as a result of the trade war.

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• Data from 2019–2020 indicates that some Australian SMEs experienced double-digit export growth, demonstrating continued strong demand for Australian products in global markets.

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• Challenges remain, including limited production capacity, long delivery cycles, and a lack of international marketing expertise, which could hinder SMEs’ ability to expand overseas.

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To better navigate these changes,Australian SMEs should consider the following strategies:

✔ Stay informed on market trends: Continuously monitor global trade developments and adjust product offerings and sales strategies to align with shifting marketdemands.

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✔ Leverage government support: Take full advantage of government-backed trade programs and incentives to enhance competitiveness.

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✔ Optimise supply chain management: Improve production planning and inventory control to enhance delivery capacity and mitigate uncertainties caused by trade disruptions.

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✔ Seek external expertise: Engage with market research and management consultants to strengthen international marketing efforts and operational efficiency.

By adopting these strategies, AustralianSMEs can better position themselves to seize emerging opportunities and drive growth in a rapidly evolving global trade environment.

Seizing Opportunities and Embracing the Future

The US-China trade war has not only reshaped global supply chains but also created both opportunities and challenges for other nations. As a third-party player, Australia has not ably benefited, particularly in resource and agricultural exports. Additionally, Australian SMEs that stay attuned to market trends, optimise their supplychains, and actively expand into international markets can gain a competitive edge in the evolving global trade landscape.

At Entactic, we closely monitor global trade developments and are committed to providing businesses with expert market analysis and strategic insights. Whether it's navigating international trade shifts or optimising operational strategies, our team can help businesses identify the best paths for growth in an increasingly complex global environment.

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