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10 Mar 2025
10 Min Read
Dr Deboshree Ghosh, Programme Director for PPE Programme
The US-China economic conflict began in January 2018 when President Donald Trump imposed tariffs and trade barriers on Chinese goods, aiming to counter alleged unfair trade practices and intellectual property theft. His administration argued that China’s policies contributed to the US-China trade deficit and required forced technology transfers from American companies. In response, China retaliated with its own tariffs, accusing the US of nationalist protectionism.
The trade war escalated throughout 2019, leading to economic uncertainty and market disruptions. In January 2020, both sides reached a tense ‘Phase One’ agreement, but by the end of Trump’s presidency, the trade war was widely viewed as a strategic failure for the US, as it failed to bring significant changes to China's economic policies.
Despite criticising Trump’s approach, the Biden administration maintained the tariffs and expanded them, adding new levies on key Chinese industries such as electric vehicles and solar panels. In a very recent turn of events, when Donald Trump started his second presidential term at the end of 2024, the US-China trade war took a dramatic turn.
In 2024, Trump’s presidential campaign proposed a drastic 60% tariff on Chinese imports, signalling a return to hardline economic policies. Following his re-election, his administration moved swiftly, implementing a 10% tariff increase on Chinese goods on 1 February 2025, setting the stage for renewed economic tensions between the two global powers.
As of 2023, the US and China account for 42% of the world’s gross domestic product (GDP). These substantial GDP contributions, coupled with their significant military shares, have made their long-standing trade war a more serious affair. In this whirlwind, Southeast Asia finds itself increasingly entangled, particularly following President Donald Trump's re-election.
This renewed tension has escalated existing concerns over China's economic imbalances, which have already prompted several Association of Southeast Asian Nations (ASEAN) governments to implement anti-dumping measures against Chinese products in response to domestic business pressures.
A second Trump presidency could see US-China economic decoupling move beyond tariffs towards a broader, more aggressive economic containment strategy. This could possibly involve strategies such as secondary sanctions on third-party companies or countries.
In simpler terms, this would mean pressuring global firms to choose between access to the US market or doing business with China. Given ASEAN’s consistent trade surplus with the US, countries in the region could face strict US tariffs if Trump determines that the surge in Southeast Asian exports to the US is being driven by Chinese firms rerouting goods through the region to evade anti-China trade restrictions.
The US-China trade war escalated on 4 February 2025, with the implementation of 10% tariffs on Chinese goods by the US. China responded by filing a complaint with the World Trade Organisation (WTO) and imposed selective tariffs on US products, including 15% tariffs on US coal and liquified natural gas (LNG), and 10% tariffs on US crude oil, agricultural equipment, large-displacement vehicles, and pickup trucks.
In addition, China announced export controls on critical minerals like tungsten, citing national security concerns. Global markets are bracing for the economic and political fallout.
In recent years, de-dollarisation has gained momentum as countries and institutions seek to reduce their reliance on the US dollar in global trade and finance. This trend has been driven by a variety of factors, including geopolitical tensions, economic sanctions, and a desire for greater financial sovereignty.
One prominent example is the digital yuan, introduced by China as part of its broader strategy to challenge the dollar's dominance in international transactions. Since 2020, China has been testing its Central Bank Digital Currency (CBDC) in various cities with the aim of making it a viable alternative to the US dollar for cross-border trade, particularly in Asia and Africa.
On 23 January 2025, US President Donald Trump took a notable step with an executive order aimed at regulating digital assets. This order established a working group to create a regulatory framework for digital currencies in the US However, in a surprising move, the same order banned the development of a US CBDC. This decision effectively halted plans to create a digital version of the dollar—a project that had been under consideration by the US Federal Reserve and other financial regulators.
Image obtained from NYT.
Ironically, this ban on a digital dollar could further accelerate global de-dollarisation. As nations seek alternatives to the dollar, especially for cross-border trade, China’s digital yuan may become an increasingly attractive option. In fact, China has already signed trade agreements with several countries—including Russia, Iran, and parts of Southeast Asia—that allow transactions to be conducted in yuan instead of dollars. Additionally, businesses in countries like Brazil and India have begun using the yuan for transactions, signalling a shift away from the dollar-centric global economy.
The rise of digital currencies also adds an element of technological competition to the mix. While the US has dominated the global financial system for decades, the growing adoption of China’s digital yuan, along with other digital currencies such as the European Central Bank’s digital euro, could create a multi-currency environment in international trade. This would further erode the US dollar’s long-standing position as the world’s primary reserve currency—a role it has held since World War II.
The intensifying rivalry between the US and China under Trump 2.0 presents significant challenges for the region, with Asia at the epicentre of this global struggle.
As tensions rise across multiple fronts, Asia's ability to navigate this complex environment will directly influence not just regional stability but also the broader global economic and political landscape. Malaysia's leadership as ASEAN Chair amplifies its role in shaping regional responses, offering an opportunity to steer ASEAN nations towards more cohesive strategies that can mitigate risks and protect their collective interests amidst these tensions.
The region should actively work towards economic diversification, enhanced security cooperation, and collective diplomacy that prioritises regional autonomy while addressing the challenges posed by both the US and China.
In light of the US-China rivalry, ASEAN nations, led by Malaysia, must come together to adopt strategies that are both proactive and forward-thinking. Malaysia’s position as ASEAN Chair offers a unique opportunity to strengthen regional unity and foster dialogue between member states, ensuring that ASEAN remains a significant geopolitical player.
Image obtained from Lowy Institute.
Under Malaysia's leadership within ASEAN, Asia has the potential to redefine the global order in ways that maintain peace, stability, and prosperity for its people. With Malaysia at the helm, ASEAN can leverage its collective voice to assert its agency, helping the region navigate the geopolitical tug-of-war between the US and China. This could not only preserve the balance of power but also solidify Asia’s position as a key architect in shaping the future of global governance.
The US-China rivalry is reshaping the global economy and politics, driving demand for leaders who can navigate these shifts. If you're passionate about global conflicts, policy-making, and driving change, our PPE programme equips you with the skills to shape the future. Book an appointment with our education counsellors and start your journey toward becoming a thought leader in international affairs.
