By Nalliah Thayabharan

The United States has enacted strict export restrictions designed to limit China’s access to vital Technologies especially within the semiconductor and artificial intelligence industries. These actions which include placing major Chinese companies like HUAWEI and SMIC on the Blacklist, expanding the foreign direct product rule and controlling the export of advanced semiconductor manufacturing equipment aim to safeguard and preserve the United States’ technological lead.

In retaliation to US policies, Beijing has heightened trade tensions with Washington by enforcing a ban on exporting certain essential materials critical for High-Tech and defense purposes as a response to the United States’ tightening technology sanctions on China.

Trade Wars are not a new phenomenon and have been part of global interactions for many years. Before examining the specifics of the current trade dispute it’s important to review the history and consequences of previous trade wars including the Opium Wars which significantly affected China’s sovereignty and its dealings with foreign powers.

In the mid 19th century between China and Western Nations primarily Britain focused on trade disagreements over opium. European demand for Chinese Goods like silk, porcelain and tea created a trade imbalance with silver flowing into China. To address this the Rothschild owned British East India Company began exporting opium from India to China resulting in widespread addiction and societal problems. The Qing Dynasty, concerned about the social impact and the outflow of silver, banned opium in 1796 and 1800. Despite these bans Rothschild’s British Traders continued to trade opium illegally.

In 1839, the Daoguang Emperor appointed Lin Zexu to the post of Special Imperial Commissioner with the task of eradicating the opium trade. Lin Zexu seized and destroyed large quantities of opium prompting Rothschild to send British naval mercenaries to China to defeat the Qing Dynasty’s army, which led to the Treaty of Nanjing in 1842.

China paid the British an indemnity, ceded the territory of Hong Kong, and agreed to establish a fair and reasonable” tariff. Britain opened five ports to British trade and imposed reparations on China

Tensions remained and in 1856 the second Opium War broke out with France joining Britain against China. The conflict concluded with the Treaty of Tientsin in 1858 and the convention of Peking in 1860. On October 18, 1860, the British and French troops entered the Forbidden City in Peking. Prince Gong was compelled to sign two treaties on behalf of the Qing Dynasty with Lord Elgin and Baron Gros, who represented Britain and France respectively to legalize the opium trade, opened more chinese ports to foreign commerce and allowed foreign embassies in Peking (Beijing) and granted foreign ships access to China’s inland waterways

The Opium Wars marked the start of China’s Century of humiliation resulting in significant territorial losses and reduced sovereignty. The treaties following the wars are often called unequal treaties due to their biased terms favouring Western Powers.

These events weakened the Qing Dynasty and exposed China to increased foreign influence and internal conflict. The Smoot-Hawley Tariff Act of 1930 signed by the US President Herbert Hoover, was a major US law intended to protect American businesses and farmers during the Great Depression by imposing high tariffs on over 20,000 imported goods, sponsored by Senator Reed Smoot and Representative Willis C. Hawley.

The Smoot-Hawley Tariff Act raised average tariff rates to nearly 60% among the highest in US history and led to immediate retaliation from America’s trading partners. Within 2 years about two dozen countries enacted their own tariffs resulting in a 65% decrease in global trade between 1929 and 1934. For instance, Canada one of the largest trading partners of the US, levied tariffs on 16 products impacting roughly 30% of US exports to Canada.

The reduction in international trade worsened the global economic downturn. US Imports dropped by 66% from $4.4 billion in 1929 to $1.5 billion in 1933, While US exports declined by 61% from $5.4 billion to $2.1 billion.

This contraction led to widespread unemployment and prolonged the effects of the Great Depression. The Smoot-Hawley Tariff Act is a policy failure that deepened the Great Depression and it serves as a warning of how protectionist trade policies can provoke international retaliation and cause severe economic repercussions.

In mid‐1962, the United States and six member nations of the European Common Market — France, West Germany, Italy, Belgium, the Netherlands and Luxembourg, engaged in a trade dispute known as the Chicken War. This conflict arose when European countries imposed 13.43 cents a pound tariff and price controls on imported US chicken to protect their domestic poultry industries which were struggling against the influx of affordable American poultry. These measures led to a significant decline in US chicken exports to Europe. In response to Europe’s poultry trade barriers, in 1964 newly elected US president Lyndon B Johnson imposed a 25% tariff on light trucks. In retaliation, US President Lynden B Johnson’s Administration in 1964 enacted a 25% tariff on various European Imports including light trucks, potato starch, dextrin and brandy. This tariff commonly known as the “Chicken Tax” had a substantial impact on the automotive industry particularly affecting German manufacturers like Volkswagen which had been exporting light trucks and vans to the US the imposition of the chicken tax resulted in a sharp decrease in imports of these vehicles effectively protecting US automakers from foreign competition in the light truck market.

Over time tariffs on potato starch, dextran and Brandy were eventually removed, but the 25% tariff on light trucks still remains in place. This enduring policy has had lasting effects including prompting foreign automakers to establish manufacturing plants within the United States to bypass the Tariff.

The current US restrictions have driven China to prioritize self-sufficiency. Significant state investments in research and development have allowed companies like SMIC to make considerable progress in semiconductor manufacturing and domestic innovation in artificial intelligence.

Quantum Computing and Telecommunications has surged in China fueled by increased funding and government incentives. China has strengthened relationships with non-US technology providers and nations not fully aligned with American policies such as Russia and some European and Asian countries through strategic Partnerships and initiatives like the Belt and Road Initiative. China has diversified its supply chains and decreased reliance on US technology. The extra territorial nature of US export controls has strained ties with key allies and partners. Companies like ASML and TSMC have sought to lessen dependency on US Technologies to avoid being impacted by the restrictions. Major US technology firms including Nvidia, AMD and Lam Research have reported substantial revenue losses due to reduced access to the Chinese market.  The current policy has limited US companies economies of scale potentially weakening their global competitiveness over time.

Despite the export controls, Chinese companies have introduced advanced products demonstrating technological sophistication.  For instance, HUAWEI’s new AI chips and smartphones feature state-of-the-art designs and Manufacturing techniques.  China’s indigenous Innovation strategy supported by state-led initiatives and international collaboration has driven remarkable advancements across various industries.

The trade war between the United States and China initiated during President Donald Trump’s first term marked a significant shift in their economic relationship. The conflict was characterized by the imposition of tariffs on hundreds of billions of dollars worth of goods disrupting trade flows and creating uncertainty in global markets.  It began in 2018 when the Trump Administration imposed tariffs under C 301 of the Trade Act of 1974 citing large trade deficit with China which exceeded $375 billion in 2017.

The initial wave of tariffs in July 2018 targeted $34 billion worth of Chinese goods including machinery, electronics and industrial products to which China responded with tariffs on US agricultural products like soybeans and pork.

By the end of 2019 the US had extended tariffs to $550 billion worth of Chinese imports covering a wide range of consumer goods such as electronics, textiles and toys while China imposed tariffs on $85 billion worth of US exports. These measures significantly increased costs for US businesses relying on imported goods often passing the burden onto consumers through higher prices for everyday items.

China’s retaliatory tariffs heavily impacted American farmers, especially soybean exporters who saw their sales to China plummet as Beijing turned to alternative suppliers like Brazil.  The US government provided over $28 billion in Aid to Farmers between 2018 and 2020 to offset these losses. US consumers and businesses bore much of the Tariff costs. In 2019 that tariffs cost the average American household $831 annually, meanwhile Chinese exports to the US declined in key sectors such as machinery and electronics prompting Beijing to implement measures like diversifying its export markets and increasing domestic consumption.  

After two years of escalating tensions, the US and China signed the phase 1 trade deal in January 2020. Under the agreement China committed to purchasing an additional $200 billion of US goods and services over 2017 levels with specific targets for manufactured goods, agriculture and energy products. In return the US suspended planned tariff increases and reduced some existing tariffs.

However the Covid-19 pandemic disrupted trade flows and by the end of 2021 China had fulfilled only 60% of its purchasing commitments. The deal also left unresolved issues like state subsidies and industrial policies. The trade War had broader effects on global supply chains prompting US companies to diversify their sourcing to countries like Vietnam, India and Mexico, and accelerated economic decoupling between US and China.

Striving to reduce interdependence, China pursued self-sufficiency in critical industries, such as semiconductors while the US sought to enhance domestic production of strategic goods.  Although the trade war did not fully achieve its goals such as significantly reducing the trade deficit it marked a turning point in US-China relations.  It highlighted deep strategic tensions that continue to shape bilateral policies and global economic dynamics as the newly elected president Donald Trump has pledged to impose stricter measures against China, intensifying policies targeting Chinese products and critical Technologies. In a significant escalation the Chinese government announced a complete ban on the export of essential materials to the US including rare earth elements necessary for producing electronics, electric vehicles and advanced weaponry. The restrictions cover materials such as gallium, germanium, antimony and super hard substances all integral to industries like semiconductors, satellite technology and night vision equipment. Additionally China indicated plans to impose tighter controls on graphite exports. China which produces over 70% of the world’s rare Earths has utilized its dominant position as a strategic counter measure. China’s ban on rare earth exports is expected to have extensive effects on US industries and global supply chains and has already caused significant disruptions for US manufacturers reliant on these materials for production. US industries involved in aerospace, renewable energy and defense are urgently seeking alternative sources with limited success.

By the way, Sri Lanka is the only country in the world to produce the purest form of graphite and its current leader brought to power by the US has already promised his mentor Victoria Nuland and Korea born US Ambassador Julie Jiyoon Chung to sell the graphite mining to US companies.  

Prices for rare earth materials have surged creating supply chain bottlenecks and threatening the competitiveness of US companies accelerated global supply chain realignment.  China’s retaliation underscores the risks of relying on single source suppliers prompting US allies to reconsider their positions while some nations may side with the US others could seek closer ties with China to avoid being entangled in the conflict.

The fragmentation of global trade networks could diminish US influence and disrupt long-standing alliances. China’s strategic leverage by exploiting its dominance in critical materials China has demonstrated its ability to retaliate effectively against US restrictions. This action not only nullifies the impact of new US measures, but also bolsters China’s negotiating position. The ban indicates China’s willingness to escalate economic confrontation if further provoked, increasing the stakes for future policy decisions.

Trump’s aggressive stance risks alienating parts of the business community and US allies who depend on stable trade with China. Industries reliant on Chinese goods and materials face rising costs threatening domestic jobs and growth. The economic backlash could undermine Trump’s promises to revive US manufacturing and protect jobs, creating political challenges at home.

Trump has issued a stern warning to the BRICS Nations-Brazil Russia India China and South Africa against attempts to establish a new currency that could challenge the US Dollar’s global dominance. Trump is threatening to impose 100% tariffs on these countries if they proceed with such plans emphasizing that any move to replace the dollar would lead to significant economic consequences including restricted access to the US market.

China as a leading BRICS member has been actively promoting the internationalization of the Chinese Yuan (¥) to reduce dependence on the US dollar. This strategy includes encouraging the use of the Yuan in global trade and investment, establishing currency swap agreements with various countries and launching Yuan denominated financial instruments. Notably China has urged West Asian oil suppliers to accept Yuan for oil transactions and has implemented policies to facilitate the Yuan’s use in cross border trade in pursuit of financial independence from US-based institutions.

China has played a key role in the BRICS initiatives to create alternative financial systems. A major development is the establishment of the new Development Bank based in Shanghai which aims to fund infrastructure and sustainable development projects in emerging economies. Also China has been instrumental in promoting the use of local currencies in trade among BRICS nations thereby reducing Reliance on the US dollar and mitigating
exposure to currency fluctuations and geopolitical risks.  These efforts reflect China’s broader strategy to enhance the Yuan’s role in the global financial system and to build financial infrastructures that operate independently of traditional western dominated institutions

However the US government views these moves as potential threats to the Dollar’s supremacy and has indicated a willingness to use economic measures such as tariffs to counteract them.  The evolving dynamics between the US and BRICS countries highlight the complex interplay of economic policies and geopolitical strategies in the current global economy.

China is not the only nation pursuing this approach. India is exploring the use of local currencies in trade to mitigate exposure to dollar fluctuations. The Reserve Bank of India has implemented mechanisms to facilitate international trade settlements in the Indian Rupee (₹) aiming to promote its use in global transactions. South Africa supports the BRICS initiative to use local currencies in trade and investment and is involved in discussions to establish payment systems that reduce dependence on the dollar aligning with the broader BRICS strategy to enhance financial sovereignty.

Russia has intensified its de-dollarization strategy and has increased the use of the Ruble(₽) and other non-dollar currencies in in trade particularly with China and other BRICS nations. Additionally Russia has been a strong advocate for creating alternative Financial systems to lessen Reliance on the US-led global financial infrastructure. In December 2023 Iran and Russia finalized an agreement to conduct bilateral trade using their national currencies the Iranian Rial (﷼) and the Russian Ruble instead of the US dollar. This decision aims to strengthen economic ties between the two nations and reduce their dependence on the dollar especially in light of the extensive US sanctions imposed on both countries.  The agreement was solidified during a meeting between the Central Bank Governors of Iran and Russia. It facilitates the use of non-Swift interbank systems and the establishment of bilateral brokerage relations enabling Banks and businesses in both countries to process transactions directly in their local currencies. This move is part of a broader trend among nations to de-dollarize their economies by promoting the use of local currencies in international trade.

For Iran and Russia both subject to US sanctions, this strategy is particularly significant as it provides a mechanism to mitigate the impact of these sanctions and enhance financial sovereignty. In addition to this bilateral agreement, Iran signed a free trade agreement with Eurasian Economic Union on December 25, 2023. This agreement aims to eliminate customs duties on 90% of goods traded between Iran and Eurasian Economic Union members – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, further integrating Iran into regional economic frameworks and reducing dependence on Western financial systems.

These developments reflect a strategic effort by Iran and Russia to build alternative financial infrastructures that operate independently of US dominated systems thereby enhancing their economic resilience amid ongoing geopolitical tensions.


Wishing you all the best in 2025 !