Trade Titans: The Impact of the U.S.-China Trade War on Global Economics
By Zack Sabadosa, MBA ’24; Maria Claudia Rengifo, MBA ’24; Pilar Sofia Resendez, MBA ’24; Adrian Rosario Beato, MPS ’24; Eman Said, MBA ’24; and Kara Styers, MBA ’24
The West, generally including Europe, North America, and Oceania nations, competes with China in economic, technological, geopolitical, and ideological fields. This rivalry is characterized by different trade policies, technological advancements, and strategic considerations that highlight the need for Western powers to evolve their strategies.
Economically, the U.S. and the E.U. employ trade policies, tariffs, and negotiations to counterbalance China’s economic influence, driven by concerns over unfair trade practices, market access, and intellectual property rights. The ongoing U.S.-China trade war is reshaping global supply chains, accentuating the economic dimension of this competition.
Technologically, the U.S. and China are making significant advancements. The West focuses on enhancing technological capabilities, particularly AI, while China progresses in cybersecurity, biotechnology, and semiconductor manufacturing. Increased investment in R&D and a commitment to innovation intensify the technological rivalry, strengthening the overall competition. (See Biden orders ban on certain US tech investments in China, Reuters, August 10, 2023.)
Geopolitically, the West implements measures closer to home to protect intellectual property and control technology exports. The CHIPS Act highlights the strategic importance of semiconductors in this geopolitical competition. Additionally, growing Chinese investments in Europe are causing increased scrutiny, further complicating the geopolitical landscape.
Ideologically, the West and China are in absolute contrast. The former emphasizes democratic values, human rights, and freedom, while the latter maintains its authoritarian regime. This ideological conflict significantly contributes to the broader competition between the two powers.
China’s economic development and capital investment policies have positioned it as an important force in the global economy over the past three decades. (See China’s Hundred-Year Strategy, Philadelphia Trumpet, August 2016.)Its increasing engagement with the Global South reshapes international relations, creating political opposition and highlighting differences in how the West competes with China. Navigating this complex landscape requires Western nations to evolve strategic approaches to address China’s multifaceted challenges effectively.
Trade war
While the initial tensions were sparked in 2018, and a “Phase One” trade deal was signed in 2020, the trade relationship between China and the U.S remains complex and continues to shape economic dynamics. One notable consequence is the recalibration of global supply chains. Firms, particularly in the technology and manufacturing sectors, have sought to diversify their supply sources to mitigate the impact of tariffs and trade uncertainties. This shift has led to a reconfiguration of production networks, impacting U.S. and Chinese businesses and those in other countries.
The trade war has also prompted a reassessment of economic interdependence. Countries worldwide are navigating the delicate balance between maintaining economic ties with both the U.S. and China while avoiding entanglements in geopolitical tensions. The ongoing dialogue between the two economic giants influences investor confidence as businesses closely monitor trade negotiations and policy developments for potential market impacts.
Moreover, the trade war has stimulated discussions on broader issues such as technological competition, intellectual property protection, and fair-trade practices. As the global economy continues to evolve, the legacy of the U.S.-China trade war resonates in business strategies, government policies, and the overall architecture of international trade relations.
Chinese investment in Europe sparks tension
From an investment perspective, Chinese investments in Europe have been scrutinized more closely. European countries concerned about national security and economic control have raised alarms about the implications of increased Chinese capital in some sectors. As China expanded its global economic footprint through initiatives like the Belt and Road Initiative, some European nations have started assessing the potential risks and benefits of increased Chinese investment. In 2022, the UK, Germany, Italy, and Denmark raised objections to over 60 percent of Chinese investment deals (See Chinese investment in Europe falls as watchdogs increase scrutiny, Financial Times, May 8, 2023.).
Infrastructure projects and technology sectors are the key industries at the forefront of this scrutiny. European governments and the European Union have started implementing stricter screening mechanisms and regulations to assess the impact of Chinese investments on national security and strategic interests. Some concerns range from intellectual property theft to potential influence over some infrastructure and technology sectors. This reflects a broad trend of nations in the West, including the U.S., reevaluating their economic relationships in the context of geopolitical considerations. This scrutiny highlights how geopolitical factors increasingly intersect with economic decision-making in the West when China is involved.
CHIPS Act
The U.S. government enacted the CHIPS Act, or Creating Helpful Incentives to Produce Semiconductors, in response to semiconductors’ critical role in modern technology and the vulnerabilities exposed during the 2020 semiconductor shortage. (See The Shifting Landscape of US-China Competition and What it Means for Your Organization, Fiscal Note, August 17, 2023.) Exacerbated by the COVID-19 pandemic, the shortage particularly impacted industries like automotive and electronics, revealing the extent of the U.S. reliance on semiconductor manufacturing in China and Taiwan.
Recognizing the national security and economic risks associated with this dependency, the CHIPS Act was designed to revitalize and bolster the U.S. semiconductor industry. The goal was multifaceted: to reduce U.S. reliance on foreign semiconductor production, particularly from China; to claim a more significant share of the global semiconductor market; to foster the development of advanced technological skills within the U.S. workforce; and to strengthen the nation’s economic and strategic autonomy.
The semiconductor industry is capital-intensive and R&D-heavy, so it may take the U.S. quite some time to decrease its reliance on China. However, the CHIPS Act reflects a strategic move in the broader U.S.-China tech rivalry, where political considerations play a significant role in addition to business dynamics. The act emphasizes the importance of addressing semiconductor dependencies highlighted during the 2020 pandemic and aims to position the U.S. as a more self-reliant and competitive player in the global semiconductor market.
Summary and closing
In response to the ongoing U.S.-China trade war, Western nations, led by the United States, are implementing a comprehensive strategy to safeguard their economic interests and technological advantages. The U.S., concerned about intellectual property theft, has identified culprits stealing proprietary information from major corporations like General Electric and General Motors for Use in Chinese businesses. (See Chinese Businessman Charged With Conspiring To Steal Trade Secrets, U.S. Department of Justice, February 26,2021; and Two Convicted in Conspiracy to Steal GM Trade Secrets Sentenced to Prison, FBI, Detroit Division, U.S. Attorney’s Office, April 30, 2013.) Measures include imposing tariffs on Chinese goods, discouraging American companies from establishing manufacturing sites in China, and employing counterintelligence tactics.
Furthermore, the U.S. actively promotes innovation in critical industries such as biotechnology to enhance competitiveness. At the same time, President Joe Biden’s 2023 executive order intensifies regulations on technology exports to China, particularly those with potential military applications. Chinese President Xi’s projection that China will economically surpass the U.S. in a century emphasizes the magnitude of the economic competition, urging Western powers to evolve strategically. (See Full text of Xi Jinping’s speech on the CCP’s 100th anniversary, Nikkei Asia, July 1, 2021.)
This multifaceted approach signifies a shift in global dynamics, with Western nations compelled to formulate careful and innovative strategies to maintain influence over China. The competitive landscape needs resilience and adaptability as the U.S. prioritizes protecting its interests closer to home. The geopolitical and economic rivalry demands meticulous planning and creative solutions to navigate the complex trade dispute and secure a prominent position in the face of China’s economic ambitions.
About the Authors
Zack Sabadosa, MBA ’24, is a graduate of the Two-Year MBA program in the Samuel Curtis Johnson Graduate School of Management at the SC Johnson College of Business, and a Roy H. Park Leadership Fellow as well as an Emerging Markets Institute Fellow. He has spent his time at Cornell University focused on private market activity, and interned in the summer of 2023 at OC&C Strategy Consulting’s New York City office. As a student, he has led the Johnson Consulting Club and has maintained two in-semester internships. Before Cornell, Sabadosa worked in technology as a business development manager advising financial institutions on cloud and data analytics transformations.
Maria Claudia Rengifo, MBA ’24, is a graduate of the Two-Year MBA program at the Samuel Curtis Johnson Graduate School of Management, a Forté Foundation Ambassador, and an Emerging Markets Institute Fellow. She has spent her time at Cornell focused on finance and business analytics and interned in the summer of 2023 as a business improvement associate at Newmont Corporation. She has served as a Johnson Leadership Fellow, leading a team of five first-year MBA students through their core classes. She serves as a Johnson Admissions Group member, interviewing MBA candidates for the class of 2026. Rengifo started her career as a private equity analyst in the financial services industry and transitioned into the hard commodities industry, where she worked in operations, financial derivatives, and portfolio management.
Pilar Sofia Resendez, MBA ’24, is a student in the Two-Year MBA Program in the Samuel Curtis Johnson Graduate School of Management, and is a Consortium Fellow. Resendez led the Hispanic American Business Leaders Association and cochaired the Johnson School’s 2023 Diversity Hosting Weekend. She has spent her time at Cornell University focused on brand management and sustainability. Her internship was at Gallo in Modesto, CA, where she will be starting full-time in 2024. Prior to Cornell, Resendez worked in consulting, setting finance strategies for consumer goods organizations.
Adrian Rosario Beato, MPS ’24, is a rising accounting professional and a graduate of the Master of Professional Studies in Management – Accounting Specialization program at the Samuel Curtis Johnson Graduate School of Management. He earned a bachelor’s of science from Ithaca College, where he was honored with the Peggy Ryan Williams Award and other awards. Beato has interned at Tonneson and Co. and PwC. As a leader, he served as the president of the National Association of Black Accountants at Ithaca College, enhancing professional growth for students of color. He was active in Beta Alpha Psi and the Leadership Academy, developing accounting and leadership programs. Beato will join PwC full-time in 2024.
Eman Said, MBA ’24, is a graduate of the Samuel Curtis Johnson Graduate School of Management and a licensed occupational therapist. Her fellowships at the Johnson School have included the Forté Foundation, the Consortium, the Emerging Markets Institute, Life Sciences in Entrepreneurship, and Fried Fellows. She led the Johnson Healthcare Club and held leadership positions in the entrepreneurship club at Johnson and as an ally for Access Johnson, a club dedicated to the Johnson community who identify as neurodivergent or hold a disability. Said completed a corporate finance immersion at the Johnson School and cochaired the EMI Mark Mobius Pitch Competition. She interned at CVS Health in specialty product development and innovation in 2023 and will be starting full time at Medtronic, in their leadership development rotational program, following graduation.
Kara Styers, MBA ’24, is at graduate of the Two-Year MBA at the Samuel Curtis Johnson Graduate School of Management. She holds fellowships including the Roy H. Park Leadership Fellowship, the Emerging Markets Institute Fellowship, and the Life Sciences Technology and Innovation Fellowship. Styers led the Association of Veterans at Johnson and cochaired the EMI Corning Case Competition. Her internship was at Bain & Company in Austin, Texas, and she will be starting there full time in 2024. Prior to Johnson, Styers served as a captain and engineer officer in the U.S. Army.