The U.S.-China Trade War and Its Impact on the Asia Trade War

The U.S.-China trade war began as a bilateral dispute over tariffs and market access. Right now, it has evolved into a defining force in regional economic strategy. Originally focused on imbalances of the two nations, the trade war between China and the U.S. now drives broader realignment throughout Asia as companies and governments adjust to rising protectionist measures and regulatory shifts.

As we approach the Asia trade war, policy continuity and renewed tariff risks make this phase especially critical for not just Asian businesses, but also global investors. Let’s examine how developments impact businesses, Hong Kong’s role as a trade gateway, and the opportunities that lie ahead in the coming years.

The ongoing trade war between the US and China

The US-China trade war has progressed through several distinct phases since 2018, evolving from tariff retaliation into a structural confrontation that continues to influence global trade and Asia’s economic positioning. Below is the timeline to look further into why the conflict now drives broader Asia trade tensions.

2018–2019 Tariff escalation and the start of the conflict

The trade war between the U.S. and China formally began in 2018 when the United States imposed tariffs on Chinese imports under Section 301 of the Trade Act, citing unfair trade practices, forced technology transfer, and intellectual property concerns⁽¹⁾. Initial tariffs targeted industrial goods and intermediate products, but the scope quickly expanded.

By late 2019, US tariffs covered more than US$360 billion worth of Chinese goods. China, on the other hand, imposed retaliatory tariffs on over US$10 billion of US exports⁽²⁾. These measures increased costs for manufacturers and disrupted supply chains across Asia, particularly in electronics, machinery, and consumer goods.

2020 Phase One agreement and limited de-escalation

In January 2020, the two sides signed the Phase One trade agreement, which included commitments by China to increase purchases of US goods and modest tariff reductions. Although the agreement reduced immediate escalation, most tariffs remained in place.

More importantly, the deal did not resolve underlying conflicts around state subsidies, technology policy, or market access. As a result, the China-US trade war timeline shifted from short-term confrontation to managed strains, rather than resolution.

Shift from tariffs to technology and supply chain control

From 2021 onward, the focus of the trade war moved beyond tariffs toward technology and supply chain security. The US expanded export controls on advanced semiconductors, chipmaking equipment, and related technologies, framing these measures as national security priorities.

It can be seen that restrictions are aimed at limiting China’s access to critical inputs for advanced manufacturing and artificial intelligence. In response, China accelerated efforts to build domestic technology capacity and strengthened controls over resources, including rare earth materials. This phase marked a structural shift, with economic policy increasingly intertwined with geopolitical strategy.

Policy continuity and renewed tariff risk in 2024–2025

By 2024 and into 2025, core trade measures remained largely intact. Despite changes in political leadership over the years, both sides maintained tariffs and controls as permanent policy tools. With renewed Trump tariff proposals and broader use of trade remedies, uncertainty increased for businesses operating across Asia. At one point, potential increases towards 145 per cent on U.S. tariffs and 125 per cent⁽³⁾ on Chinese tariffs loomed before being moderated under negotiation extensions.

Overall, the evolution of this trade war explains why Asia now faces sustained trade tension. Tariffs may fluctuate, but strategic competition over technology, manufacturing capacity, and economic influence has become embedded in global trade policy, requiring Asian businesses to plan for long-term fragmentation and regulatory complexity.

From bilateral conflict to the Asia trade war 2025

What began as a dispute has gradually reshaped the wider Asian trade environment. The US-China trade war now influences trade flows, investment patterns, and policy coordination across the region. Persistent tariffs and regulatory measures have pushed Asian economies to adapt, contributing to what many describe as the Asia trade war 2025, a phase defined by regional spillovers rather than direct confrontation alone.

Regional tensions beyond the US–China axis

Trade and policy dynamics in Asia extend beyond official decisions made in Washington or Beijing. Relations between Tokyo and Beijing have seen periods of heightened diplomatic strain following public remarks by Japanese leaders that reinforced Japan’s commitment to economic security and stability.

After the statements by Japanese Prime Minister Sanae Takaichi referencing collective defense and pressures, China and Japan exchanged mutual travel advisories and canceled certain business engagements⁽⁴⁾. Recently, in late 2025, a planned Japanese business delegation to China was also postponed amid challenges in securing substantive meetings. This incident illustrates how tension influences commercial diplomacy alongside political messaging.

Internal economic adjustments within China

Domestic economic recalibration within China also affects trade patterns across the region. In particular, China’s coastal provinces, positioned as export and manufacturing hubs, face different pressures compared with central and western jurisdictions, which focus more on domestic demand, resource processing, or industrial upgrading.

Further, local policy priorities, infrastructure development, and exposure to external markets vary significantly. Although reflecting domestic economic recalibration rather than political conflict, they create practical implications for Asian businesses.

Rising compliance complexity and cost pressure 

As trade flows adjust, companies operating in Asia face rising administrative complexity and cost pressures. Authorities across Asia have tightened customs procedures, enhanced rules of origin verification, and expanded documentation requirements to ensure genuine value-added production and prevent tariff circumvention. The movements naturally bring the rules of origin⁽⁵⁾ into focus.

Under ASEAN’s rules of origin (RoO) for the ASEAN Free Trade Area (AFTA) and related FTAs, exporters must demonstrate that a minimum local content threshold is met to qualify for preferential treatment, which demands thorough documentation of inputs, labor, and production processes.

Meanwhile, intensified checks on transshipment, targeting goods routed to the United States, have increased verification requirements, further raising the workload for compliance teams and making compliance management a central part of operational strategy.

Manufacturing relocation and diversification

One visible outcome is the redistribution of manufacturing activity across Asia. Companies are now constantly diversifying supply chains across various jurisdictions.

In addition, ASEAN economies attract increased investment as firms adopt multilocation production models that balance cost efficiency, market access, and company resilience. This shift has strengthened regional manufacturing networks, thus increasing economic interdependence across Asia.

Asia trade tensions business strategies in practice

In response, Asia trade tensions have led to business plans becoming more structured and long-term. Companies increasingly prioritize supply chain visibility, jurisdictional diversification, and regulatory planning as core management disciplines.

A common example is ASUS, the Taiwanese technology firm known for PCs and motherboards. In 2025, ASUS announced that it had moved over 90 percent of its PC and motherboard production out of mainland China to Southeast Asian countries, including Thailand, Vietnam, and Indonesia, to reduce exposure to high tariffs⁽⁶⁾.

By allocating higher-value assembly to one jurisdiction and final packaging to another, the company preserves market access while staying in good standing with the government. At the same time, current centralized digital tracking systems grant management real-time visibility, enabling timely adjustments to production schedules and logistics decisions.

To sum up, the majority of Asian firms are preparing for sustained uncertainty, and designing viable operating models across multiple scenarios in the evolving Asia trade war landscape.

Impact on Hong Kong as a global business hub

As companies diversify production across mainland China and other SEA jurisdictions, Hong Kong remains a neutral but potentially beneficial gateway for Asia trade.

Hong Kong trade position under global tension

The US-China trade war impact Hong Kong became more pronounced when the U.S. policy extended tariffs previously applied to mainland China to Hong Kong exports. This includes the removal of duty-free treatment for low-value shipments, prompting Hong Kong Post to suspend small parcel services to the United States.

Despite the increasing logistics costs, Hong Kong’s trade with other regions such as ASEAN countries, the Middle East, and mainland China continues to thrive. In 2024, U.S. exports accounted for only a small fraction of Hong Kong’s total trade, around 4.2% of imports, 6.5% of exports⁽⁷⁾. The numbers demonstrated the jurisdiction’s flexibility in redirecting trade flows to other countries.

Hong Kong offshore business tariffs and restructuring

Although Hong Kong itself maintains a zero‑tariff regime on imports and exports, recent U.S. tariff measures have materially influenced corporate planning and logistics costs. In 2025, the United States ended the longstanding de minimis exemption for goods under US$800 shipped from Hong Kong, applying tariffs of up to 120 percent on those low‑value parcels from May 2, 2025⁽⁸⁾. Prior to this change, small‑value shipments entered the U.S. duty-free, a benefit that supported e‑commerce and small‑business exports.

The tariff increase prompted Hongkong Post to suspend acceptance of parcels containing goods to the United States, affecting companies that previously relied on affordable cross‑border shipping channels. Even after subsequent adjustments that reduced tariffs on specific types of small packages to 54 percent⁽⁹⁾ of parcel value, high duties and administrative fees added high cost and complexity for exporters and logistics planners.

Despite external pressures, Hong Kong continues to be a valuable offshore incorporation location in Hong Kong trade war strategies. Its efficient company formation process, legal protections, and access to professional services make the jurisdiction a preferred hub for multinational companies adjusting their regional operations in response to the trade war.

Key takeaways on the US-China Trade War Impact

The US-China trade war has transformed trade patterns and business planning across Asia. What began as a dispute over tariffs and market access has evolved into a structural phenomenon, influencing supply chains, investment flows, and regional economic strategies.

In response, companies operating in the region are looking to adopt flexibility and proactive planning. Notably, within this context, Hong Kong continues to serve as a reliable gateway with legal stability, financial services, and efficient incorporation processes.

Regardless of the option, maintaining competitiveness requires the right jurisdiction, diversified production networks, and strict compliance methods.

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References:

(1) https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions

(2) https://www.britannica.com/money/US-China-trade-war

(3) https://www.nytimes.com/2025/04/10/business/economy/china-tariffs-145-percent.html

(4) https://www.theguardian.com/world/2025/nov/15/china-advises-against-travel-to-japan-amid-escalating-row-over-pms-taiwan-comments

(5) https://www.aseanbriefing.com/userfiles/resources-pdfs/ASEAN/ASEAN%20Rules%20of%20Origin_ASEANB.pdf

(6) https://www.supplychaindive.com/news/asus-pivots-production-southeast-asia-tariffs/758806/

(7) https://www.tid.gov.hk/en/our_work/statistics/trade_partners/us.html

(8) https://www.info.gov.hk/gia/general/202504/16/P2025041500835.htm

(9) https://www.whitehouse.gov/presidential-actions/2025/05/modifying-reciprocal-tariff-rates-to-reflect-discussions-with-the-peoples-republic-of-china/

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