How is the US-China trade war impacting global supply chains and domestic industries?

By Leo Sørensen Oct. 26, 2025

Embracing the bestowment of globalisation as an economic leverage, the renowned superpowers–The United States and China–have engaged in bilateral and transnational trade for decades. Indeed, with the ever increasing prevalence of interdependence within our world today, economic cooperation is considered an imperative in wielding mutual benefits of even the most disparate states. Nevertheless, such assertion tends to be rather challenged than reinforced given the anarchic nature of the world order; the primary objective of sovereign states is to maximise the realisation of self-interests, a critical misalignment to the purported pursuit of cooperation. For instance, China’s annual GDP growth averaging to 9.6 percent between 1978 and 2017 resulted in the inexorable burgeoning of China’s political influence, military forces, and technological power. In response, the US has attended the matter with vigilance and circumspection as it undoubtedly confronted its preeminent status on the global stage. Eventually, addressing such circumstances prompted the decoupling of interstate relations in addition to an unconventional approach to conflict: a trade war. Initiated by the Trump administration in January 2018, the trade war was a success in terms of revealing the vastly integrated notion of interdependence in the status quo, to an extent of substantially impacting the South Korea supply chains. Prior to the commencement of such conflict, the extensive economic ties interjoining the three supply chains acted as a benefactor to South Korean industries and their respective supply chains. However, with the onset of the US-China Trade War and the subsequent instability in economic cooperation, the global competitiveness of South Korean supply chains has severely weakened in recent years as seen with semiconductors. Inculpating the economic curtailment to the overreliance on external states, a strategic realignment in South Korean supply chain is a necessary procedure–diverting its dependency through the establishment and diversification of new trade alliances. 

Prior to the unprecedented outbreak of the trade war, the extensiveness of the US and China’s multinational economic cooperation had immensely benefited South Korean industries and its respective supply chains. Having acted as a pivotal supplier in intermediate goods such as semiconductors, machinery, and various industry components which are assembled through Chinese factories and exported to the US, South Korea's strategic role in the global supply chains had culminated until 2018. This dependency on the two economic powerhouses can be accentuated through the case of semiconductors. South Korea has played a significant role in the global semiconductor industry, being its largest export product that accounts for 18.9% of the country’s total exports. Consequently, South Korean firms such as Samsung Electronics and SK Hynix robustly held their dominance over memory chip fabrications, producing roughly 73% of the global DRAM market and 51% of the NAND flash market. Due to its profoundly integrated presence in the global supply chain involving such production of intermediate goods, South Korea essentially exerted a bilateral dependency on both the US and China. For instance, China has been a key market for South Korean semiconductors, responsible for 33% of semiconductor exports. Meanwhile, the South Korean semiconductor market is deemed lucrative for US suppliers of equipment, materials, and services utilised in the fabrication process. Indeed, total US exports to South Korean markets amounted to $22 billion in 2022–which would have been higher prior to the trade war–representing a staggering 20% of the global market. Hence, the involvement in a multilateral value chain substantially increased the internationalisation of South Korea production processes which contributed to the growth in the nation’s valued-added exports. However, this reflection of the value created within the exporting country is severely undermined by the proportionate increase in its dependence on foreign imports, deleterious when those specific supply chains are obstructed.

Extending on the depiction of the US-China trade relationship as a benefactor to the growth of South Korean supply chain, the assertion remains a normative statement unless an official pledge is promulgated. Nevertheless, the proliferation of South Korea’s economy as a global powerhouse had facilitated the establishment of auspicious trade agreements, invigorating the interdependence stemming from a substantially multilateral practice. Accentuating this, South Korea strategically benefited from the Korea-US Free Trade Agreement, in addition to the formation of bilateral supply chains with China in pivotal industries. First and foremost, the KORUS FTA enabled the influx of Korean exports into the US market, penetrating prevalent sectors utilising high-value goods such as automobiles and electronics –contributing to South Korea’s $29 billion trade surplus with the US in 2023 alone. Since its implementation in 2012, the agreement undoubtedly delivered positive impacts on the South Korean economy, not only accelerating export growth but also a substantial increase in direct foreign investments on key industries. Encouraging technological advancements, such US investments have played a crucial role in further boosting the Korean economy, resulting in an accumulated trade volume of $169 billion up until 2023. Complementing the economic advantages that the KORUS FTA endows upon South Korea, its cooperative intertwinement with Chinese supply chains have propelled further growth. For instance, high-tech industries such as semiconductors  have accounted for a staggering 50% of all exports, commensurate to $46.9 billion in trade revenue. This has been mainly due to the Chinese intermediary position in the global supply chain, enabling South Korean firms to access materials for high-tech manufacturing with a relatively low cost. Thus, South Korea had benefited immensely through the extensive network that China offered, actively bridging and expediting the entry of firms into new relevant markets, especially in South East Asia. Proving its necessity again amid the US-China trade war, the KORUS FTA and the inveterate establishment of bilateral supply chains with China, having unequivocally stimulated the forefront of the Korean economy. 

Despite the seemingly evident economic advantages deriving from the rise of interdependence in modern global affairs, the conflicting interests of innately anarchic states are bound to reciprocate with its corresponding repercussions. As seen through the deterioration of US-China trade relations, the strictly multilateral cooperation has prompted the erosion of the overall competitiveness in South Korea’s global supply chains. Unsurprisingly, Korea’s reliance on the two economies is resolutely conveyed through its export statistics, with China accounting for 26.8% of all exports while the US contributed to a relatively modest 12% at the exposition of the trade war in 2018. Due to the monumental increase in tariffs and the imposition of import restrictions between the two involved economies, the primary industries such as automobiles and semiconductors were inevitably forced to tolerate an adverse loss in demand. For instance, exports from the semiconductor industry alone dropped severely by 20% in 2023 compared to the years leading up to the initial stages of the trade war. Moreover, the increase in costs of essential raw materials and components have had an onerous impact on South Korean companies, burdening them with a hefty cost of production. In fact as of 2022, 34% of Korea’s semiconductor components were imported from China, underscoring the price increases the industry experienced amid the continuing uncertainties revolving around the dimensions of the trade war. Consequently, the continuing price increases have constructively reinstated and surfaced the potential over-reliance on Chinese imports, exposing the implicit vulnerabilities of bilateral supply chains. This has also precipitated managerial considerations for South Korean companies, vitalising the necessity to search for alternative supply chains with lower risk profiles to vicissitudes in external circumstances.

The relatively complex and convoluted position of South Korea within the US-China trade relations have obligated inevitable decision-making, redefining the Korean stance beyond the limits of economic interests, delving into the realm of diplomatic relations. US restrictions and sanctions on advanced Chinese technological goods has left South Korea in the midst of a cumbersome situation, having to decide whether to continue its tech exports to China. Having already been coerced to navigate through such a precarious position of adhering to US policies and the lucrative technology market in China, the Biden administration further imposed sanctions on Chinese semiconductor access in the US market. Successively, South Korea’s semiconductor industry was confronted with drastic repercussions due to the extensive integration with China, jeopardising 50% of its semiconductor exports. However, such sanctions not only affected the production capabilities of South Korean semiconductor companies, but also instigated critical discourse in its compliance with the newly placed restrictions. South Korean companies either risked losing access to American technology, which is essential for their own competitive production of goods, or the majority of its exports to China if it did not comply with US trade sanctions. For South Korea, the consequences associated with aligning with US exports controls were often understated and overlooked, despite the palpable strain in the $1.05 billion–or about 34%– of its semiconductor materials imports in 2022. Hence, in the case that South Korea complied with such restrictions, vital revenue streams would have been deteriorated indefinitely, limiting access to one of their largest and the most prominent markets in terms of automobiles and semiconductors. Furthermore, halting exports to China would have left vacillating uncertainties regarding the possibility of retaliation. This specifically includes cost increases due to disruption in supply chains, reduced market access for key industries, risks of losing foreign direct investments in China, as well as the augmented diplomatic and trade tensions. Conversely, neglecting such US export restrictions would have severely curtailed South Korea’s share from the US high-tech market. Ultimately, the intricate relationships of the three nations and their respective economies have exacerbated the overall well-being of Korea’s supply chains, manifesting the vulnerabilities of extensive interconnectedness.

After experiencing the largely problematic aspects of its established supply chains, South Korean companies are now opting for a realignment of their production routes. With the potential for further escalations in the US-China trade relations, constructing alternative supply chains is an imperative and a pragmatic measure in mitigating risks associated with reliance on single-market dependencies. This comes with the diversification of production bases, shifting the majority of their manufacturing plants to Southeast Asian countries such as Vietnam, Indonesia, Thailand, and Cambodia. The “China +1” strategy as it is commonly referred to, allows South Korean companies to still maintain a part of their operations in China while diversifying adversities by expanding into countries with highly cost-effective labour and less trade barriers compared to China. The recent growth in China’s GDP per capita and the commensurate amelioration in standards of living have driven up labour costs substantially, promoting even more companies to adopt such measures regardless of the trade war itself. In tandem, the development of the “Korea +1” strategy, which aids South Korean companies to develop manufacturing plants in domestic regions, significantly reinforced the stability of major supply chains amid further tariff hikes and the resulting economic disruptions. Notwithstanding the necessity of South Korean companies to develop supplementary supply chains, the ongoing US-China trade war has emphasised the requisite of South Korea to foster regional trade partnerships and multilateral agreements. For instance, South Korea’s proactive role in the Regional Comprehensive Economic Partnership (RCEP) which includes ASEAN, nations, China, Japan, Australia, and New Zealand, aims to foster an expansive trade integration throughout Asia. Utilising the RCEP, South Korea could potentially diversify its supply chains, reinvigorating and rigidifying economic relations within the region. In summary, this prospective agreement demonstrates South Korea’s sophisticated approach to assembling alliances beyond the scope of the two global economic powerhouses, bolstering its capabilities to waver contingent trade uncertainties. 

The prevalence of economic prosperity in the modern world is often proven to be an overstatement as evidently portrayed through the US-China trade war on Korean supply chains. Economic cooperation still remains a cornerstone to global interdependence and interconnectedness, highlighting the liberalist approach in which states are naturally inclined to cooperate on the global stage. However, as much as economic cooperation espouses the relevancy of such assertion, the otherwise can be stated simultaneously. While states tend to be cooperative in terms of establishing trade relationships, it is ultimately a means to an end in order to culminate self-interests. Thereby, the US-China Trade War predominantly demonstrated the anarchic nature of the international system where domestic interests trumps and prevails over collaborative gains. Explored through the case of South Korea, it is certain and unequivocal that the common proverb of “The Miracle of the Han River” is a direct product of South Korea’s unyielding economic power founded upon interdependence. Similar to the majority of economically active nations, the dependencies of American and Chinese supply chains have been the underlying propellant in driving South Korea to its position in the status quo. Nonetheless, the unavoidable consequences of the US-China trade war aggravated Korean supply chains, to an extent that equalises the degree of bilateral interdependence between the two gargantuas. Hence, in order to thrive in the modern economy of interconnectedness, securing an array of monolithic alliances has become the quintessential agenda for many, reflecting South Korea’s eventual integration into the broader global economic spectrum. Whatever the future holds for this promising peninsula, the US-China trade war has definitely acted as a wake up call, providing guidance through the increasingly volatile global trade landscape with resilience and adaptability.