Market Pressure and Asian Allies: Key Forces Behind the 2025 US-China Trade Truce
Mounting Economic Pain Forced Both Sides to the Table
The 2025 US-China trade truce emerged directly from economic pressures that became impossible for either side to ignore. After nearly seven years of escalating tariffs, American manufacturers saw production costs rise by an average of 23% for components sourced from China. Meanwhile, Chinese exporters faced a 31% decline in US market access compared to pre-trade war levels. These concrete economic impacts finally overcame the political incentives to maintain hostilities.
Supply chain disruptions reached critical levels by late 2024. The Boston Harbor incident in September 2024, when customs officials detained $420 million worth of Chinese electronics for alleged intellectual property violations, triggered immediate retaliation. Beijing responded by halting rare earth exports, which affected production at 137 American factories within weeks. This mutual economic damage created the practical conditions that made negotiation necessary.
The Vulnerability Phase: When China Gained Leverage
During the initial 2018-2020 phase of the trade war, China demonstrated unexpected resilience through three key adaptations. First, Chinese manufacturers rapidly relocated portions of their production to Vietnam, Malaysia, and Mexico to circumvent US tariffs. Second, the domestic Chinese market expanded to absorb products previously destined for American consumers. Third, the Belt and Road Initiative accelerated, creating alternative markets for Chinese goods.
By 2023, these adaptations gave China significant leverage. When the US imposed 35% tariffs on Chinese electric vehicles, China responded by restricting exports of gallium and germanium—metals essential for semiconductor manufacturing. This targeted pressure point illustrated China’s strategic edge: while US tariffs addressed broader categories of goods, Chinese countermeasures precisely targeted American technological vulnerabilities.
The Numbers Behind China’s Early Edge
The economic data reveals how China gained leverage. Between 2018 and 2025, China reduced its trade dependency on the US from 19% to 12% of total exports. During the same period, US dependency on Chinese imports for critical electronic components remained at 26%. This asymmetry created what economists termed the « vulnerability gap »—the difference in economic pain tolerance between the two nations.
By mid-2024, the US trade deficit with China had narrowed to $283 billion annually, down from $419 billion in 2018. However, this reduction came at the cost of $317 billion in increased consumer prices for American households and an estimated $194 billion in lost business opportunities for US companies.
Strategic Failures in the First Round
The initial US approach contained three strategic miscalculations. First, policymakers assumed China would quickly concede to American demands when faced with tariff pressures. This underestimated both China’s economic resilience and political willingness to absorb short-term pain. Second, the US failed to coordinate effectively with allies, allowing China to isolate American pressure. Third, American tariff strategies focused on consumer goods rather than targeting sectors where China sought technological advancement.
These miscalculations enabled China to weather the first round of the trade war while developing structural advantages for the longer conflict. When the US imposed 25% tariffs on $200 billion of Chinese imports in 2019, China responded by devaluing its currency, effectively neutralizing much of the tariff impact while simultaneously making Chinese exports more competitive globally.
The Silicon Shield: How Semiconductors Became the Central Battleground
By 2022, both nations recognized that semiconductor supply chains represented the most consequential aspect of the trade war. American export controls on advanced chip manufacturing equipment, particularly extreme ultraviolet lithography machines, aimed to delay China’s technological development in artificial intelligence and quantum computing. China responded by massively increasing domestic semiconductor research funding to $173 billion over five years.
This semiconductor battle created unforeseen consequences. Taiwan’s position as the world’s leading chip manufacturer made it the focal point of economic tensions. The Taiwan Semiconductor Manufacturing Company found itself navigating increasingly complex political pressures while trying to maintain business relationships with both American and Chinese clients. This semiconductor dependency made Taiwan the de facto negotiating bridge between Washington and Beijing during the most heated periods of the trade war.
How Asian Allies Shifted the Power Balance
By 2024, the stance of Asian economies played a decisive role in pressuring both sides toward the 2025 truce. Japan, South Korea, and Singapore—all with deep economic ties to both China and the United States—began coordinating their diplomatic responses to the trade war. The Osaka Economic Cooperation Framework, established in November 2024, represented a unified position from Asian allies: they would not choose sides in the US-China conflict and instead would prioritize regional economic integration.
This neutral stance from Asian economies removed America’s ability to build a united front against China while simultaneously limiting China’s capacity to isolate the United States. With both economic superpowers facing a unified bloc of nations unwilling to participate in further trade hostilities, the political calculus in both Washington and Beijing shifted toward de-escalation.
The Domestic Politics Behind the Truce
Internal political pressures ultimately forced both nations toward compromise. In the United States, manufacturing states experienced unemployment increases of 2.3% directly attributable to Chinese counter-tariffs on agricultural and industrial products. These economic impacts translated into political pressure from affected Congressional districts. Meanwhile, in China, reduced access to American agricultural products contributed to food price inflation of 9.7% annually by 2024, creating consumer dissatisfaction that concerned Beijing leadership.
These parallel domestic pressures created the political space for negotiators from both countries to pursue compromise without appearing to concede. The resulting 2025 truce represented a pragmatic acknowledgment that the economic costs of continued hostility had become politically untenable for both administrations.
The Mechanics of the 2025 Truce
The trade agreement signed in Singapore on March 17, 2025, contained four key provisions. First, both nations agreed to reduce tariffs to 2018 levels over an 18-month period. Second, China committed to increasing purchases of American agricultural and energy products by $80 billion annually. Third, the United States eased some technology export restrictions while maintaining controls on the most advanced semiconductor equipment. Fourth, both countries established a new dispute resolution mechanism outside the World Trade Organization framework.
Notably absent from the agreement were any substantive provisions addressing the core American complaints about Chinese industrial policy, intellectual property practices, or state subsidies. These omissions reflected China’s strengthened negotiating position and highlighted how the first round of the trade war had failed to achieve its original American objectives.
The Business Response: Relief and Skepticism
American and Chinese businesses reacted to the truce with a mixture of relief and skepticism. Stock markets in both countries saw modest gains, with the S&P 500 rising 3.2% and the Shanghai Composite increasing 4.1% in the week following the announcement. However, business investment remained cautious, with 67% of surveyed multinational executives indicating they would maintain their diversified supply chain strategies rather than returning to pre-trade war arrangements.
This cautious business response reflected recognition that the 2025 truce represented a temporary pause rather than a fundamental resolution of the underlying economic competition. Companies maintained their supply chain diversification strategies, anticipating that tensions could resurface once either country had strengthened its position.
Lessons for the Second Round
The first round of the US-China trade war provided clear lessons for both nations. For the United States, it demonstrated that unilateral pressure was insufficient when dealing with an economy of China’s size and resilience. For China, it revealed the importance of technological self-sufficiency and the vulnerability created by dependency on foreign semiconductor technology.
Both nations emerged from the first round with refined strategies. The United States shifted toward coalition-building with European and Asian partners while focusing on technology export controls rather than broad tariffs. China accelerated its dual circulation strategy, emphasizing domestic consumption while securing access to critical resources and technologies through global partnerships.
The 2025 truce thus represented not an end to economic competition but a strategic reset—a recognition by both sides that the first approach had reached its limits and that new tactics would be needed for the second round of what had become a long-term economic rivalry.
This article is an excerpt from the book The First Round – Inside the US-China Trade War and China’s Early Edge by Olivia Brown -ISBN 978-2-488187-20-6.
