Since the outbreak of the U.S.-China trade war in 2018, it has become one of the most defining conflicts in the global economic landscape. Despite multiple attempts over the past few years to resolve the dispute through negotiations, no comprehensive agreement has been reached to date. With Trump's return to the White House, tariffs on China have intensified significantly, and China has responded with retaliatory tariffs. As of now, the average U.S. tariff on Chinese imports has surged to 124.1%, which is 40 times higher than the level before 2018. China's tariffs on U.S. products have also once reached a peak of 125%. These unprecedentedly high tariff levels highlight the severity of the situation and have shaken global markets.

As things stand, there have been recent signs from both sides indicating a willingness to resume dialogue and negotiations. According to reports, senior U.S. officials have repeatedly signaled a possible adjustment of tariffs and have expressed a desire to negotiate on tariff issues through various channels. After assessing global economic expectations, its own national interests, and calls from U.S. industries, China has also decided to agree to engage in consultations with the U.S. Based on available information, Chinese Vice Premier He Lifeng is currently leading a delegation in Switzerland to meet with the U.S. Treasury Secretary and other senior officials. Both Chinese and U.S. sources indicate that the negotiations have made positive progress, with important consensus already reached. Further discussions on details will continue, and a joint statement is expected. At the same time, China's Ministry of Foreign Affairs has reiterated that the U.S. should recognize China's goodwill, though that this goodwill is not unlimited.

Based on the current situation, the final outcome of the negotiations remains uncertain and could still change. However, one noteworthy aspect of this "tariff war" is the question: just how deeply intertwined are U.S.-China trade relations? Researchers at ANBOUND believe that this tariff war has effectively become a "stress test" of the mutual trade dependence between the two nations. Prior to the trade war, many underestimated the degree of this interdependence. Yet, once the trade war actually began, it became startlingly clear that, despite China having emphasized self-reliance and a "dual circulation" strategy for many years, it still relies heavily on the U.S. for a wide range of products. A sudden trade disruption reveals alarming vulnerabilities. On the U.S. side, many also failed to grasp the extent to which Chinese manufacturing and Chinese products impact American society.

For China, the situation is not exactly optimistic. Take the aviation manufacturing industry, for example: China has yet to fully master the independent R&D of high-end aircraft engines and still relies on the U.S. for critical components, which are essential to sustaining the entire aviation sector. After the outbreak of the "tariff war", an analysis by the Financial Times revealed that nearly all key components of China's domestically produced C919 aircraft depend on foreign suppliers, with most of them American. The aircraft's most vital part, the LEAP-1C engine, is supplied by CFM International, a joint venture between the U.S. and France with core parts manufactured in Ohio. China's domestically developed replacement engine is still undergoing testing and remains far from ready. Shockingly, there are as many as 48 U.S. suppliers in the C919's supply chain, far more than the 14 Chinese suppliers. These include American companies like Honeywell and Collins Aerospace, which provide crucial avionics and flight control systems. This means that the U.S. could choke off China's large aircraft project at any time. It also translates to any sanctions China attempts in retaliation could end up hurting itself.

In addition, China's manufacturing sector is surprisingly dependent on certain energy and chemical raw materials from the U.S. A typical example is ethane, a key raw material in plastic production. The U.S. shale gas revolution has led to a low-cost supply of ethane, and many of China's newly built ethane cracking facilities in recent years have heavily relied on imported U.S. ethane to produce basic chemicals like ethylene. Under a high-tariff environment, the cost and stability of these raw material supplies face significant risks. According to Bloomberg, China has recently granted tariff exemptions to two domestic plastic producers that are highly dependent on U.S. ethane, shielding them from the severe impact of high tariffs in the trade war. This highlights the deep reliance of some Chinese firms on U.S. raw materials., Without such exemptions, tariffs as high as several dozen or even over a hundred percent would render operations unsustainable. In fact, since 2019, China has been dynamically adjusting its tariff policies on certain chemical raw materials such as ethane and propane in an effort to avoid self-inflicted harm to its own industries.

In the healthcare sector, China's reliance on the U.S. is primarily seen in high-end pharmaceuticals and medical equipment. Many advanced drugs, such as new cancer treatments and biopharmaceutical products, as well as medical devices, are still mainly supplied by the U.S. and other Western countries. Out of consideration for public health, China has largely exempted a significant portion of U.S. pharmaceuticals from retaliatory tariffs. Recent reports indicate that some multinational pharmaceutical companies have been able to export medicines to China tariff-free. These tariff exemptions apply to specific urgently needed drugs rather than the entire pharmaceutical sector. This reveals that, in certain areas of medicine, China is currently unable to replace U.S. supplies in the short term and must ensure that these critical medical products are not affected by tariffs.

Available information indicates that China's reliance on certain U.S. products has become a significant vulnerability amid the trade war, revealing that the country's past efforts at domestic substitution and independent R&D have not been fully effective. As a result, it will not be easy for it to completely eliminate reliance on the U.S. in the short term. This reality is reflected at the policy level: China has been compelled to grant exemptions on certain U.S. products to ensure the stable operation of its domestic industrial chains. According to a Guardian report on May 7, China has so far granted tariff exemptions on approximately USD 40 billion worth of U.S. imports during the trade war, including certain high-end pharmaceutical products, semiconductors, and aviation equipment.

On the U.S. side, Chinese manufacturing and Chinese products, especially in the consumer goods sector, pose the greatest threat and challenge, as the pricing of these goods is closely tied to everyday life in American society and can simultaneously affect both major political parties and the upcoming election. The U.S. may be able to overlook China's advancements in high-tech sectors, but it cannot ignore shortages or price increases in children's toys and dolls, as these would immediately spark public outcry. In addition, certain pharmaceutical products are also critical, as China is the world's largest producer of active pharmaceutical ingredients (APIs). A disruption in API supply would severely impact the sensitive pharmaceutical sector. For these reasons, the U.S. has exempted USD 102 billion worth of Chinese goods from additional tariffs in order to ease the cost burden on domestic businesses and consumers.

Overall, the tariff exemptions granted by both countries are not signs of either side "backing down", but rather rational adjustments made under the pressure of real-world constraints. These "pressure adjustments" indicate that, despite deep-seated differences between the two countries, the economic complementarity in key sectors cannot be ignored at this stage. The trade war has not resulted in one side overwhelming the other; instead, it has prompted both sides to more clearly recognize a fundamental reality: at this point, neither country can maintain normal industrial and market operations under a scenario of full decoupling. Therefore, while this tariff-driven trade conflict may persist for some time, it is ultimately not a matter of one side winning or losing between the U.S. and China. From the current perspective, it is clear that trade is trade, and in the end, trade issues must be resolved by returning to the framework of trade itself.

It is worth noting that following this "stress test", differing voices have emerged within the U.S. regarding the tariff war. On May 9, during the "Make America Wealthy Again" event held in the White House Rose Garden, President Trump hinted that the current tariffs of up to 125% on Chinese goods might be reduced to around 80%, with the exact figure depending on the outcome of upcoming trade negotiations in Switzerland. As ANBOUND has previously predicted, the core design of Trump's economic policy has essentially failed, and it is highly likely that U.S. tariffs will return to the baseline level of 10%. Ultimately, trade agreements between the U.S. and other major global economies are likely to be based on this "10% baseline tariff", which would represent a more rational outcome.

Final analysis conclusion:

Although the U.S.-China tariff war is characterized by intense confrontation, it fundamentally reveals and tests the deep interdependence between the two countries' trade relations. China's vulnerabilities in key areas were fully exposed during this "stress test", and the same holds true for the U.S. As a result, countries need to focus more on achieving practical balance and enhancing industrial resilience. For China especially, there should be a stronger emphasis on increasing investment in the manufacturing of consumer goods.

______________

Chen Li is an Economic Research Fellow at ANBOUND, an independent think tank.