Title: Trade War Between the United States and China: Implications for China

Author: Henry Gao

Abstract: This paper examines the evolution of the US–China trade war from 2018 to 2025 and analyzes its legal, economic, and systemic implications for China. It argues that the second trade war differs fundamentally from the first: while the United States has shifted from China-specific tariffs toward universal baseline tariffs applied across trading partners, intensified enforcement against transshipment has effectively ensured that Chinese exports remain subject to punitive tariff rates of at least 85%, severely constraining China’s access to the US market. At the same time, major economies are increasingly abandoning the Most-Favored-Nation (MFN) principle in favor of bilateral preferential arrangements, accelerating the fragmentation of the multilateral trading system and undermining the core normative foundations of the World Trade Organization (WTO). China’s legal response has correspondingly shifted from reliance on WTO dispute settlement toward challenges within US domestic courts, though these avenues offer only limited practical relief. Economically, China’s efforts to offset external pressures through consumption-led stimulus have produced only modest results so far, as structural factors — including household purchasing power, real income growth, living costs, and social protection — continue to constrain domestic demand. The paper argues that as the global trading system moves away from multilateralism toward a fragmented order increasingly shaped by economic security concerns, China’s longterm adjustment cannot depend on external legal remedies or rely primarily on short-term stimulus measures. Instead, sustainable adaptation requires deep domestic structural reforms aimed at redistributing income toward households, reducing reliance on export-led growth, and building a stronger welfare state capable of supporting consumption-driven development.

Keywords: US–China Trade War, Tariff Policy, Transshipment, Most-Favored-Nation (MFN) Principle, World Trade Organization (WTO) Reform, Structural Reform, Domestic Consumption, US Domestic Legal Remedies