Despite escalating rhetoric, the U.S. and China are unlikely to fully decouple their supply chains. Their relationship is maintained by a fragile equilibrium where the U.S. provides semiconductor chips in exchange for China's critical rare earth minerals, making a return to the status quo the most probable outcome.
The current trade friction is part of a larger, long-term bipartisan U.S. strategy of "competitive confrontation." This involves not just tariffs but also significant domestic investment, like the CHIPS Act, to build resilient supply chains and reduce reliance on China for critical industries, a trend expected to persist across administrations.
While strategists view short-term trade tensions as a potential dip-buying opportunity, a sustained escalation presents a major risk. A scenario where both nations maintain trade barriers long-term could stall China's economy and negate the prevailing market thesis of an early-cycle 'rolling recovery' in the U.S.