Relations between the US and China were strained by a series of tough actions by both sides, including visa restrictions, new regulations on diplomatic trips, the expulsion of reporters, and the closure of China’s consulate general in Houston, Texas, and the US consulate general in Chengdu. 

Bilateral economic consequences

China and the US have both suffered losses from the tariff war begun in 2018. Early this year the two countries reached a Phase 1 trade deal to temporarily ease the trade war. President Donald Trump is scheduled to hold a Phase 2 negotiation with China after the US Presidential election in November. But the COVID-19 pandemic and recent tensions have cast a shadow on the negotiation.

Bilateral trade has been damaged. The US remains China’s biggest export market even after Trump imposed stiff tariffs on Chinese goods. And China is the third biggest market for American exporters and a primary market for US companies like General Motors and Burger King. Import of agricultural products, semi-conductors, and other goods from China fell 11.4% in 2019, but still exceeded 100 billion USD. US exports to China provides jobs for nearly 1 million Americans, although the figure is now 10% lower than in 2017.

American technology companies have been exposed to high revenue risks as they depend on Chinese factories for smart phones, computers, and other electronic devices. When the US banned Huawei from using American technology and software, suppliers in Silicon Valley lost billions of dollars. Beijing has asked Chinese producers to seek other markets beside the US.

Economic relations disturbed

China-US ties are an important part of global relations. The bilateral tensions have harmed their economies as well as others around the world. Economist Jeffrey Sachs says the world is headed for a period of “massive disruption without any leadership”. Division between the two powers will worsen the situation, he warned.

Wall Street firms have been examining the implications of the reversal of a decades-long effort to form a more symbiotic relationship between the world’s two largest economies. One frequent view is that the world will become far more polarized, with economies and companies gravitating toward either a Chinese or an American orbit.

In its second-half outlook, BlackRock said the US-China confrontation will push other countries to choose sides. Decoupling is focused on — but not limited to — the technology sector.

Since early this year the world has seen changes in relations between the US and China which appear destined to continue.