Strained U.S. China Relations The Ripple Effect

Geopolitical Risks and Trade Dynamics - The initial response to heightened geopolitical risks is a reshuffling of trade flows rather than significant investments in new capacity[1] - Reliance on Chinese imports for many Western allies fell only after the Russia-Ukraine war[2] Friendshoring and Supply Chain Reconfiguration - Friendshoring is slow and costly, with little evidence of material shifts in trade with geopolitical allies post-2018–2019 U.S.–China tariff war[10] - The push for friendshoring is expected to intensify, although actual foreign direct investment (FDI) flows have not notably increased due to high interest rates[13] Industrial Policies and Trade Measures - The U.S. is aggressively reshoring chip production, with South Korea, Taiwan, and China accounting for about 70% of global semiconductor production[15] - Trump's proposed tariffs are seen more as bargaining chips, with a likely outcome of 15% tariffs and limited retaliation options for China[7] EU's Trade Stance and Economic Implications - The EU is the largest trading partner for both the U.S. (18.5% of total goods trade) and China (13%), but has made only marginal shifts in reliance on Chinese imports[21] - European officials are expected to push back on Chinese trade, recognizing the systemic issues posed by China's unbalanced growth strategy[32]