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How would a US-China war affect global trade and the economy?
Executive summary
A full-scale US–China war — distinct from the tariff-driven trade wars of recent years — would severely disrupt global trade, likely shrinking output, raising prices and forcing major supply‑chain bifurcation; recent modelling of tariff‑only episodes shows global production and trade effects can be modest-to-large depending on escalation and non‑trade measures (global trade rose 3% after the 2018–19 tariff moves because of trade diversion [1], but other models and simulations show global production falling and inflation rising under heavier tariffs) [2] . Reporting in 2024–25 shows policymakers on both sides using export controls, rare‑earth leverage and sweeping tariffs — tools that, if employed in wartime, would amplify economic shockwaves around the world [3] [4] [5].
1. A war would be more than tariffs — it would add export controls, sanctions and supply‑chain breaks
Recent coverage highlights that modern economic conflict mixes tariffs with export controls, rare‑earth restrictions and restrictions on tech exports; those tools can create choke points that persist even when headline tariffs fall, multiplying damage to trade flows beyond what tariff‑only models predict [3] [5]. The 2025 rounds of U.S. tariffs and China’s threatened export controls on rare earths show how quickly strategic export measures can be weaponized and how they target critical inputs, not just finished goods [4] [6].
2. Historical trade‑war evidence: re‑routing, winners and losers
Analyses of the 2018–19 tariff escalation show that while U.S.–China bilateral trade fell, third countries captured displaced flows and, on net, global trade rose about 3% because businesses re‑routed trade to other suppliers and markets [1]. That finding underlines a powerful mechanism: trade diversion. But diversion benefits are uneven — some exporters live up as substitutes, others (like particular U.S. agricultural sectors) were damaged for years [1] [7].
3. Macroeconomic modelling: stagflation‑style costs if escalation is broad
Simulations by policy institutes find larger macro costs when tariffs are broad and deep: the Kiel Institute’s scenario with very high reciprocal tariffs predicts global production falling, prices rising and notable harm to the U.S. economy especially — e.g., a drop in global production of ~0.75%, U.S. output hits harder than China in that model [2]. S&P Global and other modelling warn that protectionism restrains investment, fuels financial stress and reduces global growth when it becomes systemic [8].
4. Strategic inputs and industrial policy complicate recovery
Journalistic and policy accounts note that China has invested for years in self‑reliance and can use its control of certain supply chains (rare earths, magnets, some chemicals) as strategic leverage; the New York Times and others describe this as a bulwark that lets Beijing “weaponize” supply chains, while U.S. policy has focused on reshoring and CHIPS‑style industrial incentives [3] [9] [10]. Those structural shifts mean post‑shock recovery won’t simply revert to pre‑war patterns.
5. Contagion to emerging markets and third parties: supply‑chain realignment
Multiple analysts and institutions found that third countries suffer through higher input costs, competitive pressure and uncertainty; some nations and industries win via substitution, others lose if they depend on either market or on inputs from the contested supply chains [1] [2] [7]. The World Bank/WTO literature stresses that uncertainty about trade policy can magnify damage beyond measured tariff effects [11].
6. Prices, consumers and investment: who pays and who flees
Evidence from recent tariff rounds shows higher prices for consumers and higher costs for firms; analyses estimate household burdens and reductions in fixed investment as firms delay or cancel projects amid uncertainty [12] [8]. Protectionism tends to raise inflation domestically in countries imposing tariffs and to shift production investment away from targeted markets [8] [12].
7. Political economy and alternative outcomes — negotiating room and truce effects
Contemporary reporting shows episodes of de‑escalation and truce are possible and materially change outcomes: the 2025 trade truce and tariff rollbacks illustrate how diplomacy can ease economic pain, while persistent strategic controls can remain in place as bargaining chips [6] [5]. This means economic fallout is not a single inevitable path: diplomacy and negotiated suspensions of measures can limit damage.
8. Limits of current evidence and key unknowns
Available sources document tariff episodes, export controls and policy modelling but do not offer a comprehensive empirical record for a full kinetic war between the U.S. and China. Specifically, available sources do not mention the exact macro path or timing of disruption for a hypothetical hot war, nor firm estimates of trade loss under active military conflict; modelling of tariff regimes gives useful bounds but is not a perfect analogue for wartime measures [1] [2] [8] [11].
Conclusion — two‑track risk: localized diversion vs systemic shock
If conflict stays limited to trade measures, the global economy will re‑route trade and some countries will gain while others lose — as occurred after 2018–19 [1]. If conflict escalates to broad export controls, embargoes or destruction of logistics networks, models and reporting warn of larger output losses, higher prices and persistent reconfiguration of supply chains — outcomes diplomats and firms are already planning around [2] [8] [5].