The Impact of the U.S.–China Trade Conflict on Global Supply Chains: Tariffs, Trade Diversion, and Strategic Decoupling

This structured review aims to draw together the empirical and policy literature on the impact of the U.S.-China trade tensions on global supply chains from 2018 to mid-2026. It covers tariff incidence, bilateral trade, trade diversion, relocation of production, export restrictions on semiconductors, restrictions on critical minerals, agriculture and macroeconomic spillovers. The evidence examined suggests that there has been significant pass-through of U.S. tariffs to importers and downstream users and a reduction in the amount of direct U.S.–China trade in a number of tariff-sensitive industries. Many of the adjustments, however, have been geographical – moving towards “connector economies”, such as Vietnam and Mexico – but not a wholesale break from Chinese production networks. While the literature is most conclusive on tariff pass-through, bilateral trade contraction, and certain third-country gains, the findings on the effects of trade on labor markets are mixed. The findings regarding the effects of trade on labour markets are mixed, with the strongest evidence in the literature for tariff pass-through, bilateral trade contraction, and selected third-country gains. Information about the efficacy of new technology and critical-mineral controls in the long run is less developed and heavily dependent on institutional and policy information. The impact on most developing economies, such as Pakistan, is also poorly studied.The heart of the matter is that falling bilateral trade should not be confused as a sign of real diversification of supply chains. Decoupling in global production is limited by the need to continue using Chinese intermediate goods, processing capacity, technology, capital and ownership.