High cost of US decoupling from China

Tariffs were meant to punish Chinese exporters and encourage American manufacturing; instead, they have raised prices for US consumers

- Imran Khalid

The economic relationship between the US and China has entered a new and more dangerous phase. What began as a trade war has hardened into deliberate separation. Washington insists that decoupling is necessary to protect national security and reduce dependence on Beijing. Yet the evidence now suggests that this strategy is inflicting greater damage on American industry than on China's economy.

The second Trump administration has intensified tariffs and restrictions, presenting them as a patriotic defence of American jobs. But the reality is more complex. The decoupling has exposed structural weaknesses in US industry, while China has adapted with surprising speed. The result is a widening gap between political rhetoric and economic outcomes.

China's decision in October to require government approval for exports of products containing more than 0.1 percent rare earth content was a turning point. Rare earths are critical for defence manufacturing, renewable energy and consumer electronics. American firms suddenly faced higher costs and uncertainty in sectors that Washington had hoped to shield from Chinese influence.

The policy was not a dramatic embargo. It was a subtle but effective reminder of China's leverage. Beijing showed that it could weaponise its dominance in rare earths without resorting to outright bans. For US companies, the impact was immediate. Defence contractors reported delays, while renewable energy firms warned of rising costs. The American push to build domestic rare earth capacity remains years away from maturity. In the meantime, China retains the upper hand.

The renewed tariff regime has also backfired. Tariffs were meant to punish Chinese exporters and encourage American manufacturing. Instead, they have raised prices for US consumers and squeezed American firms that rely on Chinese inputs. Inflationary pressures have been exacerbated by supply chain disruptions.