The future of the global economy is currently largely shaped by the ongoing trade confrontation between the United States and China. At this stage, both parties maintain a hardline rhetoric, offering little reason for optimism. Each side continues to impose reciprocal measures, including increased import tariffs.
US Treasury Secretary Scott Bessent has not ruled out a complete breakdown of trade relations between the two economic giants. Meanwhile, Ray Dalio, founder of the investment powerhouse Bridgewater, has voiced concerns that trade disputes may lead to consequences worse than a standard economic recession. Alarmed by potential price hikes, American consumers have begun stockpiling essential goods — a panic that analysts say resembles the early days of the COVID-19 pandemic.
Trump’s Hardline Approach
Donald Trump, during his first term in office, frequently criticized the nature of trade relations with China, focusing particularly on the massive trade deficit. In response, the US administration at the time imposed higher tariffs on Chinese imports, prompting mirror-like retaliatory measures from Beijing. In September 2020, a World Trade Organization panel concluded that the US had violated global trade rules by implementing these tariffs.
Now back in power, Trump has once again turned to tariff policies, justifying his actions with the same goal — reducing the trade imbalance with China. As of April 10, tariffs on Chinese imports have surged to 145%. In response, China raised duties on US goods to 125% and restricted the export of rare earth elements to America.
Beyond the conflict with China, Washington introduced temporary tariffs of 10% on goods from its other trade partners, effective for three months starting April 9. According to the president, over 75 countries have approached the US seeking dialogue on trade barriers and tariffs.
Economic Risks for the US and China
According to Ngozi Okonjo-Iweala, Director-General of the World Trade Organization, trade between the US and China could fall by as much as 80% if current restrictions remain in place. Such a decline would result in a 15% drop in Chinese exports, potentially hindering economic growth and raising unemployment in the country.
The United States would also face negative consequences, including a shortage of consumer goods, rising prices due to the need for import substitution, increased costs for intermediate goods, and reduced export potential as a result of China’s countermeasures.
Experts warn that companies may see falling profitability, with bankruptcies and unemployment likely to increase. The instability of US tariff policy — marked by abrupt changes and lack of clarity — is deterring investment and hindering efforts to shift production abroad or develop domestic manufacturing.
While Secretary Bessent has acknowledged the possibility of severing trade ties with China, he emphasized that there are currently no domestic economic reasons to do so. Meanwhile, Bloomberg reports that Chinese authorities have ordered a halt to new Boeing aircraft deliveries and advised their airlines to stop purchasing American aviation components.
Economists believe the likelihood of a complete trade breakdown is extremely low. “The two economies are too interconnected. You can’t just erase $600–700 billion in trade overnight,” one expert commented.
Nonetheless, analysts suggest that if such a scenario were to occur, China would suffer more significant losses than the US. However, this could serve as a catalyst for a faster transition to a consumption-driven economy and more aggressive economic stimulus.
“With sound economic policy, China could neutralize the impact of losing the US market within a few years. Moreover, it might strengthen its position as a growth driver for its partner countries. A scenario where the global trade system splits into two autonomous blocs — one led by the US, the other by China — is also plausible,” analysts suggest.
Global Implications of Trade Escalation
The tightening of US tariff policy has prompted China to file another complaint with the World Trade Organization. Chinese Foreign Ministry spokesperson Lin Jian accused the US of weaponizing tariffs for economic gain, violating WTO rules, and destabilizing the global trade system.
The WTO itself has expressed serious concerns about the risks posed by trade wars. Okonjo-Iweala has warned that the US approach could reduce global trade volume by approximately 1% by 2025.
Ray Dalio also issued a stark warning: in his view, Trump’s economic strategy threatens not only international trade but also the very foundations of the global financial system. “The world is on the brink of a recession, and if things spiral out of control, we could face a crisis even deeper,” he stated.
According to expert Abelev, a total trade rupture between the US and China could spark a global recession. Together, these two economies account for nearly half of global GDP — the US contributing about 25%, and China roughly 20%.
Such a rupture would disrupt international manufacturing and logistics chains. With increased tariffs, China would be forced to seek lost revenue in other countries, likely making its goods more expensive on alternative markets.
Analysts also warn that the global economy could experience dislocation comparable to the supply chain disruptions during the pandemic. This would cause product shortages, reduced export potential, declining investment and consumer demand, and rising unemployment.
“Both China and the US will attempt to compensate for the lost trade volume through domestic production and reorientation toward other markets, but these processes take time and come with significant costs,” an expert explains.
There is also a chance of re-exporting goods between the US and China via third countries. In such a case, the global economy could fragment into several regional clusters. This new structure would be less efficient and could slow global GDP growth while pushing inflation higher.
Inflation is expected to hit the US harder due to supply-side shocks. Meanwhile, China continues to combat deflation by encouraging consumer spending and replacing lost exports with domestic demand. Industries most at risk include electronics, automotive, textiles, and agriculture.
Nonetheless, global economic losses are currently seen as moderate, since the trade conflict is primarily bilateral. Even in the worst-case scenario, experts forecast global inflation to rise to 7.5-8%.