It is now getting on for eight years since President Donald Trump first initiated Section 232 tariffs against China in March 2018. To some, these and the Section 301 tariffs that followed weeks later marked the launch of what has become known as the “US-China trade war”; to others, it was the first concerted pushback against China’s long-standing mercantilist approach to trade.

At the time, the administration emphasized the objective of correcting China’s mercantilist trade practices: an undervalued exchange rate, engaging in systematic intellectual property theft, forced technology transfer, heavy state subsidies, and discrimination against foreign firms. These combined to result in perennial and large trade surpluses for China, the corollary of which was deficits for the United States. The approach to China was framed in the context of China being the most egregious example of a failing world trade system.

Over time, especially after the COVID-19 pandemic highlighted the degree to which the world had come to depend on China for critical goods, and as China’s domination of advanced manufacturing increased, the administration and the subsequent Biden administration re-framed international trade policy in the context of strategic rivalry.

Viewed through the prism of strategic rivalry, the metrics for measuring success or failure differ from those used if the objective had been limited to modifying China’s mercantilist behavior. While direct trade decoupling is a stepping stone, the ultimate objective appears to be the development of “China-free” or “blue” supply chains.

Tariffs have not changed China’s behavior as initially intended: By the end of November 2025, China’s trade surplus in goods had surpassed US$1 trillion. The renminbi (RMB) remains chronically undervalued, and China is doubling down on its state-led industrial policy. While China’s economic model is constantly being refined, there has been no fundamental change in its approach. With no modification in its model, decoupling became the second option.

There has, however, been a substantial fall in the US trade deficit against China. Back in 2018, the US exported US$120 billion of goods to China and imported US$538 billion, resulting in a merchandise trade deficit of US$418 billion.¹ By 2024, US exports to China had grown modestly to US$143 billion, while imports fell significantly to US$439 billion, resulting in a trade deficit of US$296 billion. Although data for the final quarter of 2025 is not available yet, based on the first nine months of the year, it appears likely that US exports to China are likely to exceed US$100 billion, with imports from China down nearly 30% at approximately US$310 billion, yielding a deficit in the region of US$200–US$220 billion. So, the bilateral deficit will have halved from its 2018 level, with 90% of the adjustment coming from lower imports from China.

Of course, both the US and Chinese economies have grown considerably since 2018, when the first tariff escalation occurred. As a result, the stagnation and decline in bilateral trade in nominal dollar terms are even more significant when considered in the context of the overall economy. In 2018, US gross domestic product (GDP) was US$20.5 trillion, rising to US$28.75 trillion by 2024. China’s GDP grew from US$14.2 trillion to US$18.75 trillion over the same period. US imports from China accounted for 2.6% of US GDP in 2018 and a mere 1.5% in 2024. In 2025, that figure is likely to fall to around 1.1%. For China, these exports to the US were significant: 3.8% of GDP in 2018, 2.7% in 2024, and likely around 1.5% in 2025.²

Chinese imports from the US were not a large portion of China’s GDP to begin with — 0.8% of GDP in 2018 — and fell slightly to 0.7% in 2024. In 2025, this is projected to decline further to around 0.5% of GDP. From the US perspective, its exports to China were not a meaningful proportion of GDP: 0.6% in 2018, 0.5% in 2024, and likely 0.4% in 2025.³

Clearly, a large part of this decoupling has occurred under the second Trump administration, but how real is it? Trade patterns were disrupted, particularly in the fourth quarter of 2024 and the first quarter of 2025, by the anticipation of the second round of Trump tariffs, which led to front-loading of imports from China. This impact can be stripped out by comparing the third quarter of 2024 versus 2025.

On this basis, US imports from China were down by 39% year-on-year, a fall of US$51 billion. The sectors that saw the biggest fall in value were electrical machinery and equipment (HS85) at US$16 billion, and nuclear reactors, boilers, machinery, and mechanical appliances (HS84) at US$12 billion. Interestingly, however, China’s total exports in these sectors actually grew despite the drop in exports to the United States. Furthermore, in the case of HS84, total US imports increased by US$27 billion, while in the case of HS85, they dropped modestly by US$3 billion, which is substantially less than the US$16 billion drop from China.⁴

This strongly suggests that direct imports from China have largely been replaced by indirect ones. This argument is further supported by the rapid decline in direct trade in response to the new, elevated tariff rates, which did not allow alternative suppliers sufficient time to develop the capacity needed to replace Chinese supply with their own.

It is particularly noticeable that while China’s market share in US imports declined steadily from 21% in 2020 to 15% in 3Q 2024 — a loss of six percentage points in four years — it then plummeted to just 9% by 3Q 2025, losing six percentage points in a single year.

While China has lost share, four countries stand out as gainers: Vietnam, Mexico, Taiwan, and Thailand. The suspicion, naturally, is that China is rerouting exports through these countries. Even if there is some value being added in the host market, significant Chinese content is likely embedded in the final export to the US. That is why, in the view of the administration, the second phase of deeper decoupling will require these countries to meet rule-of-origin requirements or face stiff tariffs themselves.

The recent move by Mexico, ahead of the United States-Mexico-Canada Agreement review, to impose hefty tariffs on non-free trade agreements partners (mainly impacting China) suggests that Mexico is keen to limit Chinese content in its exports to maintain privileged access to the US market.

Vietnam’s tentative trade deal with the US also contains provisions, although vaguely defined, for hefty tariffs on transshipments. Thailand’s negotiated deal with the US, struck in August, also focuses on transshipments as a key concern.

The enforcement of the transshipment’s tariffs — a 40% penalty tariff on top of any existing tariffs — will necessitate additional barriers to trade in the form of documentation. At the same time, it presents an opportunity for countries willing to commit to legal access to the US market. There appears to be little doubt that the US is committed to cutting as much Chinese content out of its supply chain as possible. Working with the US to ensure “China-free” or “blue” supply chains through backward integration and third-country sourcing of components may offer the best path to nurturing infant industries in emerging industrial powers. After all, China’s lack of import growth outside of commodities, fuel, and food has disappointed those who saw it as a potential market for their manufactured goods, while China’s exports of excess capacity continue to threaten embryonic industries elsewhere. Despite all the needless bluster and belligerence, the economic reality is that the US remains the most promising market for manufactured goods and its largest supplier, China, is being forced to leave.