US-China trade war: Opportunities for investors and founders

Unless you’ve been living under a rock in recent years, you’ve heard of the US-China trade war.

My last piece focused on the investment war between the two countries, so now it’s time to dive into trade and what opportunities there are for founders and investors in this arena.

How we got here

China joined the World Trade Organization (WTO) in 2001 and committed to sweeping economic reforms that included tariff cuts for imported goods and intellectual property protections.

Since then, China’s economy has grown fivefold and is now the world’s second-largest by gross domestic product. The annual trade volume between the US and China has grown from a few billion dollars to hundreds of billions of dollars.

Image credit: Council on Foreign Relations

However, things took a turn when the Trump administration imposed tariffs on US$360 billion worth of Chinese imported goods (about 67% of total US imports from the country) between 2018 and 2020.

China responded by imposing tariffs on about US$60 billion worth of US imports. The Biden administration has continued by implementing anti-China industrial policies, including the CHIPS and Science Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act.

Despite all this, as we approach the fifth year of the trade war, trade in goods between the US and China climbed to a record high of  US$690.6 billion in 2022.

Where this is going

It’s clear that attempts to separate the US and China in global trade have been less effective than anticipated. Media headlines have also recently switched from calling it a “decoupling” to a “derisking” when describing the US approach to China.

Some think “derisking” is just decoupling in disguise, while others see it as a more practical approach for what the two sides hope to achieve. I fall into the latter category.

I see three key challenges that will make it difficult for the US and many other regions to decouple from China fully in global trade. Ultimately, the US and China must balance preserving national security and maintaining a healthy economic relationship, and derisking can accomplish that.

Nowhere else can manufacture like China

It will take decades to build highly efficient manufacturing clusters that have self-sufficient supplier ecosystems like those in China.

Recently, terms such as reshoring, friend-shoring, and multishoring have been trending in the media, all of which point toward reducing reliance on China’s supply chain. While it is valuable to invest in a more diversified and therefore more resilient supply chain strategy, I think it is equally important to acknowledge the strength of China’s supply chain.

One case in point is electronics. Ninety percent of the world’s electronics are produced in Shenzhen, where almost any electronic component supplier and manufacturing equipment can be found.

State-run China has a manufacturing advantage

China is a major consumer for Western companies

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