In the early 19th century, Britain imported large quantities of tea, silk, and porcelain from China. However, the scale of British exports to China was relatively small. As silver continued to flow into China, British merchants began selling opium from India to balance the trade deficit. The conflict that erupted in 1839 when the Qing government confiscated and destroyed opium ultimately escalated into war, known as the 'Opium War,' driven by economic interests.
Now, 180 years later, the trade conflict between the world's two largest economies, the United States and China, is also described as a 'war.' However, in the current U.S.-China trade war, tariffs and export controls, particularly on semiconductors and rare earths, have replaced guns and cannons as weapons. When the U.S. raises tariffs, China retaliates with its own tariffs, and when the U.S. restricts advanced technology exports, China limits the supply of critical minerals. Since 2018, the pattern of trade conflict between the U.S. and China has consistently made headlines. Yet, today's trade war differs significantly from the Opium War; while the Qing dynasty had no means to restrain Britain, both countries now hold each other's vulnerabilities, making it impossible to cease trading while applying pressure.
The U.S.-China summit held in Washington on September 24 underscored this reality. The two nations agreed to extend their trade truce, set to expire in November, until January 10, 2027, and to activate the U.S.-China Trade Council to apply lower tariffs on approximately $30 billion worth of goods from each side.
From an external perspective, the U.S. and China appear to be growling at each other over tariffs, semiconductors, and rare earths. However, a closer look at their economic relationship reveals a mindset of 'we won't let go of each other.'
Despite ongoing tensions, why are they discussing tariff reductions and expanding trade? The answer lies in the deep entanglement of their markets, supply chains, and finances. Both countries are competitors but also crucial markets and suppliers for each other. According to U.S. statistics, from January to July this year, the U.S. imported about $156.4 billion from China and exported approximately $65.2 billion to China. Eight years into the trade war and amid supply chain restructuring, the trade volume between the two nations still exceeds $220 billion during the same period.
It is undeniable that the U.S. has benefited from Chinese manufacturing. Chinese consumer goods and intermediate products have long played a role in lowering prices in the U.S. market. Recent data from the Federal Reserve indicates that the impact of tariff increases has burdened American consumers. According to their findings, retail prices of Chinese imports rose by 8.5% year-on-year by December 2025, with at least 30% of the tariffs imposed on Chinese products between April and December passed on to consumer prices.
However, trade with China has not only brought benefits to the U.S. The so-called 'China Shock' significantly impacted employment and wages in U.S. manufacturing regions that directly competed with Chinese products. Areas more exposed to competition from Chinese imports experienced greater adverse effects. This is why the U.S. finds it challenging to easily lift tariffs despite the growing burden on consumers.
China, too, cannot afford to disengage easily due to the substantial benefits it derives from the U.S. The U.S. remains a massive consumer market, and the dollar-centric financial system significantly affects Chinese companies and financial institutions in international transactions. For years, China has accumulated a significant portion of the dollars earned through exports as foreign exchange reserves and has invested in U.S. Treasury bonds. Although China's holdings of U.S. Treasury bonds, which once exceeded $1 trillion, have decreased, they still amounted to $618 billion as of the end of July this year. While the nature of financial interdependence is changing, the fundamental structure that makes it difficult to separate the two economies in the short term remains intact.
Moreover, both countries can exert pressure on each other's 'choke points.' The U.S. holds leverage not only through tariffs but also through advanced semiconductors, semiconductor manufacturing equipment, design software, and the dollar-centric financial network. Conversely, China possesses significant influence in rare earths, critical minerals, and manufacturing supply chains that the U.S. finds hard to replace. According to the U.S. Geological Survey (USGS), from 2020 to 2023, an average of 67% of the rare earth compounds and metals consumed in the U.S. were sourced from China, with natural graphite at 43% and antimony at 53%. Expanding the scope to include critical minerals necessary for advanced industries and defense further amplifies China's supply chain influence.
Interdependence grants both sides the power to strike effectively, but the more they wield that power, the greater the costs they incur. If the U.S. pushes tariffs and technology controls to the limit, its businesses and consumers will bear the burden. Similarly, if China excessively weaponizes resources like rare earths, it could accelerate the decoupling of supply chains from the U.S. and other countries. Thus, neither side can freely use the cards they hold.
The concept of a 'constructive strategic stability relationship' is not unrelated to this reality. The two nations agreed on this relationship's definition during a summit in Beijing last May, and this time they added principles of 'respect, fairness, and equality.' President Xi Jinping emphasized the need to make cooperation the main trend while managing competition within appropriate limits and controlling differences. While this may be seen as diplomatic rhetoric, the establishment of a trade council and discussions on tariff reductions indicate that both countries are indeed creating mechanisms to prevent the escalation of competition.
The U.S.-China rivalry is unlikely to end in the short term. Future conflicts surrounding semiconductors, AI, electric vehicles and batteries, rare earths, and supply chains are expected to intensify. However, this does not mean that the two superpowers are on a path to war. While deep interdependence does not guarantee the prevention of conflict, a complete severance of relations would impose costs on both sides. This is why it is difficult to apply the Thucydides Trap or the Opium War directly to the U.S.-China relationship.
Therefore, the essence of the U.S.-China trade war is not about defeating the other but rather a competition to reshape the conditions of interdependence to their advantage. They raise tariffs, negotiate, impose export controls, and then resume trade, all while preparing sanctions and simultaneously creating frameworks for dialogue—a contradictory relationship akin to 'frenemies.'
The current discussions on tariff reductions are limited to non-sensitive items, excluding semiconductors and electric vehicles. While both nations continue trading, they are clearly drawing lines in areas tied to security and technological competition. South Korea should pay attention to the boundary between these sensitive and non-sensitive areas. Instead of being swayed by the apparent discord and conflict between the U.S. and China, it is crucial to accurately read what each side is controlling and trading within the underlying structure of mutual restraint. Only then can opportunities for benefits and buffering roles be identified while balancing on that boundary.
Author's Key Background
- Research Fellow at the AI Research Institute, Gyeonggi Research Institute
- Adjunct Professor at Hanyang University, Department of Strategic Information
- Member of the Local Government Special Committee of the Presidential Committee on Basic Social Affairs
- Evaluator for Overseas Institutions at the Economic and Social Research Council
* This article has been translated by AI.
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