Commentary: The U.S.-China Rivalry Enters Deeper Waters

Since late September, U.S.-China tensions have reignited, shifting prominently from tariff-based disputes to non-tariff domains. The conflict is now spreading across four key fronts: the U.S. applying the "50% equity ownership look-through rule" from financial sanctions to technology export controls against China; the imposition of new port fees on Chinese ships, which Beijing has reciprocated; the addition of 16 Chinese entities and three Hong Kong addresses to the U.S. entity list over drone concerns—met by China with its own unreliable-entity list targeting foreign anti-drone companies; and both countries imposing export restrictions on raw materials crucial to the technology sector[para. 1].

In contrast to the earlier, tariff-centric disputes of January to September, three new characteristics now mark the conflict: a focus on strategic security and technology rather than broad macro-level issues, a shift from open tariff measures to more nuanced non-tariff tools, and China’s move from passive defense to proactive engagement in supply-chain governance within its strengths[para. 2]. As a result, the latest phase of U.S.-China competition is more targeted, uses a diversified set of tactics, and sees China playing a more active role[para. 3].

The 2024 U.S.-China contest can be divided into three phases: from February to early May, the conflict sharply intensified with massive tariffs (the U.S. imposed a 145% tariff, while China retaliated with 125%), essentially amounting to a trade embargo[para. 4]. From mid-May to late September, tensions eased, tariffs were reduced (U.S. tariffs down to 30% with another 24% suspended for 90 days), and regular high-level trade talks were held. Since late September, conflict has sharply re-escalated, notably through reciprocal restrictions in sectors like shipping, rare earths, semiconductors, and drones. This abrupt shift, just weeks after constructive talks, struck the market as a significant turning point, though the analysis urges caution before declaring a fundamental change in relations[para. 4][para. 5].

Historical patterns from great-power competition suggest the situation isn't a total collapse: U.S.-led trade wars follow strategic rhythms, typically targeting exports, then domestic markets, and eventually moving from economic to political arenas. Competitive industries—particularly mid-to-high-end technology sectors—consistently serve as battlegrounds[para. 6][para. 7]. Notably, trade escalations often occur just before major diplomatic events, such as the APEC summit, as posturing for leverage; Trump’s threat of a 100% tariff on Chinese goods for November 1 aligns with this pattern, suggesting that the current escalation may be a negotiating tactic rather than a step toward unmitigated conflict[para. 8].

Rather than an unexpected breakdown, the current escalation reflects a deeper, more nuanced contest moving from broad tariffs to targeted sectoral friction[para. 9]. The long-term trend is a protracted effort to reshape the global order, akin to the decades-long U.S.-Japan trade disputes[para. 10]. Future competition will likely focus on industrial standards, technological strategy, and financial systems, with the potential to spill into areas beyond trade, influencing investment, inflation, and politics.

Economic impacts are moderated by China’s robust manufacturing system, which has pushed Chinese firms to globalize, investing in and exporting to new emerging markets such as Africa and the Middle East[para. 11]. On the U.S. side, the tariffs have raised concerns about stagflation, with consumers bearing 40% of the costs and core inflation rising by around 0.4 percentage points, while American companies absorb much of the remainder[para. 12].

Market sensitivity to the latest round of tension is lower than earlier in the year; for example, the Shanghai Composite Index only dropped 0.8% this time versus over 10% earlier in April[para. 13]. As the competition moves to strategic industries—integrated circuits, industrial software, advanced materials—sectoral volatility is expected to increase, and both sides are targeting each other's strengths in the global value chain[para. 14].

For investors, this evolving rivalry provides three clues: products facing U.S. export controls will benefit Chinese substitution; for those facing import restrictions, Chinese firms will diversify markets; and where Chinese export controls apply, shortages may temporarily lift prices[para. 15]. The analysis is authored by Zhou Junzhi, chief macro analyst at CSC Financial and an adjunct adviser at Zhejiang University[para. 16]. The opinions reflected are those of the author, not necessarily the publication[para. 17].