The US-China Trade War: A Legal, Economic, and Geopolitical Analysis

Abstract

The US-China trade war is a defining geopolitical and economic conflict of the 21st century, shaping global trade policies, market dynamics, and international law. This conflict is rooted in long-standing trade imbalances, allegations of intellectual property (IP) theft, unfair subsidies, and national security concerns. The imposition of tariffs, sanctions, export controls, and retaliatory measures has led to significant disruptions in global supply chains, foreign direct investment (FDI) flows, and the financial stability of numerous industries.

At its core, the trade war is governed by principles of international trade law under the World Trade Organization (WTO), US domestic trade regulations, and China’s counteractive legal frameworks. The dispute also highlights the weakening of multilateral institutions, as both nations have disregarded WTO rulings and relied on unilateral economic coercion.

Beyond its impact on the US and China, this trade war has reshaped the global economy, with countries like India, Vietnam, and Mexico emerging as alternative manufacturing hubs. The legal intricacies of this economic battle underscore the need for countries to develop strategic trade policies, ensure legal compliance, and position themselves in the evolving global trade order.

This article provides a comprehensive legal and economic analysis of the US-China trade war, examining its origins, escalation, impact on global markets, and India’s strategic response.

Introduction

The Evolution of US-China Trade Relations

The trade relationship between the United States and China has undergone significant transformations over the decades. Initially, the US encouraged China’s integration into the global economy, culminating in China’s accession to the WTO in 2001. However, economic tensions began to rise due to concerns over China’s trade surplus, industrial policies, intellectual property violations, and state-controlled economic model.

The Trump administration’s imposition of tariffs on Chinese imports in 2018 marked the formal beginning of the trade war. While initially framed as a dispute over trade imbalances, it quickly escalated into a broader confrontation involving national security concerns, restrictions on technology transfers, and economic decoupling.

The Biden administration has largely continued these protectionist policies, reinforcing export controls on semiconductors, banning Chinese technology firms, and strengthening alliances with Western economies to counter China's rise.

This trade war has led to:

• Legal disputes at the WTO
• Unilateral and retaliatory tariffs on hundreds of billions of dollars in trade
• Sanctions and restrictions on key industries such as semiconductors, AI, and telecommunications
• Restructuring of global supply chains and trade routes
• Diminishing influence of international legal institutions

Historical Background and Causes of the Trade War

1. Trade Imbalances and Tariff Disputes

The United States has long expressed concerns over its trade deficit with China. As of 2018, the US had a trade deficit of over $400 billion with China, raising concerns about job losses in American manufacturing sectors. The Trump administration initiated tariffs under Section 301 of the Trade Act of 1974, alleging unfair trade practices by China.

2. Intellectual Property Rights (IPR) and Technology Transfers

One of the primary allegations by the US against China pertains to forced technology transfers and intellectual property theft. US corporations operating in China were allegedly coerced into sharing proprietary technologies in exchange for market access. The US, citing violations of international intellectual property laws, imposed targeted sanctions against Chinese firms.

3. National Security and Strategic Concerns

The US further escalated restrictions against China by invoking national security exceptions under Section 232 of the Trade Expansion Act of 1962. The imposition of restrictions on companies like Huawei and TikTok was justified on grounds of potential cybersecurity threats, leading to retaliatory measures from China.

4. WTO Disputes and Legal Challenges

Both the US and China have brought multiple cases before the WTO, challenging each other's tariffs and trade policies. The WTO ruled against certain US tariffs, stating they were inconsistent with global trade rules, but the US countered by questioning the WTO’s effectiveness and blocking the appointment of new judges to its appellate body.

Legal Framework Governing the Trade War

1. The World Trade Organization (WTO) and International Trade Law Violations

The WTO serves as the primary international body for regulating trade disputes. However, the US-China trade war has highlighted the limitations of WTO enforcement mechanisms, as both countries have engaged in policies that violate WTO principles.

A. Violation of the Most-Favored-Nation (MFN) Principle

Under Article I of the General Agreement on Tariffs and Trade (GATT), WTO members are required to provide equal trade terms to all member nations. However:

• The US imposed tariffs specifically targeting China, violating the MFN principle.
• China retaliated with tariffs on US imports, also violating WTO rules.
• The WTO ruled in China’s favor in 2020, declaring US tariffs illegal, but the US ignored the ruling, further undermining WTO authority.

B. WTO Dispute Settlement Cases

The US and China have engaged in multiple legal battles at the WTO:

• China’s complaint against US tariffs (2018): WTO ruled that US tariffs violated global trade rules.
• US allegations against China’s industrial subsidies: The US argues that China’s state-backed subsidies distort competition.
• China’s counterclaims regarding US export bans: China asserts that US restrictions on Huawei, TikTok, and semiconductor sales violate international trade norms.

2. US Domestic Trade Laws and National Security Justifications

The US has invoked multiple domestic trade laws to impose tariffs and restrictions on China.

A. Section 301 of the Trade Act of 1974

• Grants the US President authority to impose tariffs on foreign nations engaging in unfair trade practices.
• Used as the legal basis for tariffs on Chinese goods worth over $500 billion.

B. International Emergency Economic Powers Act (IEEPA)

• Enables the President to restrict trade during a national emergency.
• Used to ban Chinese technology firms such as Huawei and TikTok.

C. Foreign Investment Risk Review Modernization Act (FIRRMA)

• Strengthens the Committee on Foreign Investment in the United States (CFIUS) to block Chinese acquisitions of US companies.
• Used to prevent China from acquiring critical technologies, particularly in semiconductors, AI, and quantum computing.

3. China’s Legal Retaliation and Trade Countermeasures

A. Anti-Foreign Sanctions Law (2021)

• Allows China to impose counter-sanctions on US entities and individuals.
• Targeted US firms complying with US trade restrictions on China.

B. Data Security and Cybersecurity Laws

• Introduced strict data localization requirements, affecting companies like Apple and Tesla operating in China.

C. Export Control Laws on Rare Earth Minerals

• China restricted exports of critical minerals, essential for semiconductors, EV batteries, and military technology.

Economic and Geopolitical Impact of the Trade War

1. Global Supply Chain Disruptions

• US tariffs increased production costs, leading to higher prices for American consumers.
• Companies have shifted supply chains to Vietnam, India, and Mexico to reduce reliance on China.
• The semiconductor war has disrupted global technology industries, affecting firms like Nvidia and Qualcomm.

2. Impact on the US Economy

• Higher costs for businesses due to increased tariffs on Chinese imports.
• Agricultural losses: China reduced imports of US soybeans and pork, affecting American farmers.
• Growth of domestic semiconductor manufacturing, but at significantly higher costs.

3. Impact on the Chinese Economy

• Declining exports to the US have slowed GDP growth.
• Forced domestic innovation in technology and semiconductors due to export restrictions.
• Shift in economic partnerships toward Asia, Africa, and Latin America.

4. India’s Strategic Positioning

India is emerging as a beneficiary of the trade war, attracting supply chain relocations and FDI inflows.

A. Foreign Direct Investment (FDI) Growth

• Apple, Samsung, and Tesla have expanded manufacturing in India to reduce dependence on China.
• PLI (Production-Linked Incentive) schemes attract high-tech industries, including electronics and pharmaceuticals.

B. Strengthening Trade Agreements

• Expanding bilateral trade deals with the US, EU, and ASEAN.
• Strengthening regional supply chains through the Indo-Pacific Economic Framework (IPEF).

C. Legal Challenges for Indian Businesses

• Navigating US export controls when dealing with Chinese firms.
• Complying with WTO rules on subsidies and tariffs.

Conclusion: The Future of Global Trade and India's Role

The US-China trade war represents a permanent shift in global trade policies, characterized by economic nationalism, technological competition, and weakened multilateral institutions.

For India, this presents a golden opportunity to emerge as a global manufacturing hub, attract high-tech industries, and strengthen trade partnerships.

By ensuring legal compliance, robust economic policies, and strategic trade agreements, India can capitalize on the restructuring of global trade and position itself as a leader in the evolving economic order.