As former President Donald Trump prepares to travel to Beijing for high-stakes trade talks accompanied by a contingent of leading American CEOs, all eyes are turning to the core promise that defined his two election campaigns: rolling back decades of U.S. economic integration with China. While much has been written about Trump’s unorthodox model of state-aligned corporate policy, which blends tariffs, export controls, government equity stakes and personal pressure to advance American commercial interests, this analysis digs into a more pressing question: nearly a decade after Trump first took office on a decoupling platform, how much progress has the U.S. actually made?
To contextualize the current state of relations, it is necessary to revisit the bilateral economic model that dominated the mid-2010s. Back then, the division of labor was clear: U.S. companies led research and development, designed finished products, then sent blueprints to China for final assembly. Components often came from third-party Asian economies like Japan, South Korea and Taiwan, though Chinese suppliers were increasingly common, before finished goods were shipped back to the U.S. for marketing, sales and after-sales service by American firms.
This arrangement left both nations dissatisfied. American observers argued that shifting labor-intensive assembly to China had gutted U.S. manufacturing employment – a claim backed by empirical evidence – and warned that outsourcing low-value work would eventually lead to the loss of higher-value, high-skill activities down the line, a projection that has proven increasingly plausible. For their part, Chinese leaders resented being trapped in the low-value-added segment of global supply chains, watching the bulk of profits flow to foreign firms. As a result, both sides began implementing policies to dismantle the old framework and build a new commercial order.
China deployed targeted industrial policy to onshore high-value component manufacturing and cultivate homegrown “national champion” brands, while successive U.S. administrations under both Trump and Joe Biden worked to cut American trade dependence on China, alongside tightening export controls on critical strategic technologies like semiconductors – a step China later matched with its own restrictions on rare earth exports. It is widely acknowledged that China has already delivered on its half of the decoupling: today, far more Chinese-made finished goods rely on domestic components, and the country has climbed the global value chain to produce globally competitive brands including BYD, Huawei, Xiaomi, DJI and CATL.
The question that remains fiercely contested is whether the U.S. has succeeded in its goal of reducing reliance on Chinese manufacturing. On the surface, hard data suggests significant change: the share of U.S. imports sourced from China has fallen sharply since the first Trump-era tariffs took effect. Analysis from The Wall Street Journal shows that while some firms have relocated production back to the U.S. to avoid tariffs, the shift remains modest: a 2025 survey of Ohio manufacturers found just 9% had reshored some production from China, up from 4% in 2021, with 60% of that reshoring activity coming from China. Most production exiting China has moved to Mexico and Southeast Asian nations instead.
The impact of tariffs is clear even from Trump’s first, less aggressive term: U.S. buyers shifted imports of tariffed goods away from China while maintaining non-tariffed imports, and the expanded tariffs implemented in Trump’s second term – which far outpace duties levied on U.S. allies – have accelerated this shift. The reallocation has been concentrated heavily in other Asian economies and Mexico, with product-specific trends marking the change: first-term tariffs targeted low-value goods like furniture, footwear and apparel, where China’s market share was already declining gradually due to rising domestic labor costs. More recent duties have cut into Chinese exports of consumer electronics including personal computers and smartphones; just two years ago, most U.S.-bound PCs were assembled in China, and today the majority are assembled in Vietnam.
Decoupling is not limited to trade flows: the trend is equally pronounced in foreign direct investment. 2025 saw a wave of reports about U.S. multinationals moving production capacity out of China, and this anecdotal evidence is reflected in aggregate data, which shows a sharp collapse in foreign direct investment inflows to China. Most of this diverted investment has landed in Southeast Asia, though advanced manufacturing capacity has largely shifted to Europe. Three core factors are driving this capital exodus. First, tariffs have made manufacturing in China for export to the U.S. far more costly, giving multinational firms a direct financial incentive to halt new factory investments in China. Second, repeated experiences of technology appropriation by Chinese domestic firms, often with implicit or explicit government support, have cooled multinationals’ enthusiasm for accessing China’s market – many firms have entered China chasing access to its huge consumer base, only to lose their core technological advantages to local competitors that do not play by global market rules. Third, rising geopolitical tensions over Taiwan and the South China Sea have raised the specter of conflict, which would leave foreign-held factories in China at risk of blockade or expropriation, forcing companies to reevaluate their supply chain risk exposure.
Despite these clear trends, a contingent of decoupling skeptics – the so-called “macro camp” – argues that any apparent shift is largely illusory. This group, which brings together unlikely ideological allies from protectionist economists frustrated that tariffs have not reduced global trade imbalances to free-trade advocates at outlets like *The Economist* and the Peterson Institute who argue tariffs are inherently ineffective, claims that persistent U.S. trade deficits and Chinese trade surpluses prove Chinese goods are still reaching the U.S. via hidden indirect routes. I have long pushed back against this framing: the persistence of aggregate macro imbalances does not prove Chinese goods are still entering the U.S. at the same rate. China can simply find new export markets for its goods, while the U.S. sources imports from new suppliers, leaving overall global imbalances intact even as bilateral trade between the two powers shrinks.
That said, to resolve this debate it is necessary to test the most common claims that decoupling is a myth. The most frequent argument is transshipment: the idea that Chinese firms evade tariffs by labeling goods “Made in Vietnam” or another third country before shipping them to the U.S. But analysis from economist Gerard DiPippo finds transshipment plays only a minor role, accounting for at most 18% of China’s lost U.S. export volume, and likely far less. DiPippo’s analysis compares what products China stopped exporting to the U.S. and what products China increased exports of to Vietnam after tariffs took effect; if large-scale transshipment were occurring, these product categories would align, and they generally do not.
A more credible argument focuses on trade mismeasurement. A persistent gap exists between the value of goods the U.S. records as imports from China and the value of goods China records as exports to the U.S., with China’s recorded decline far smaller than the U.S.’s. Much of this gap has been attributed to the de minimis exemption, which allowed Chinese firms to ship small packages directly to U.S. consumers tariff-free. Chinese manufacturers exploited this loophole by breaking large bulk orders into multiple small shipments to avoid duties. However, Trump closed this loophole via executive order in mid-2025, so it cannot explain the continued decline in Chinese exports to the U.S. over the past year.
The most convincing argument for continued hidden reliance on Chinese manufacturing centers on intermediate goods. Just as 2011’s “Made in China” iPhones relied heavily on components from Japan, South Korea and Taiwan, today’s “Made in Vietnam” iPhones often include large volumes of Chinese-made parts. Since high-value components account for the majority of a finished electronics product’s total value, this would mean the U.S. remains indirectly dependent on China even as final assembly shifts abroad. A 2024 study by Hsu, Peng and Wu found this effect is substantial, concluding that U.S. importers retain significant indirect dependence on China via third-party suppliers in Vietnam and Mexico. The major limitation of this research, however, is that its data only extends through 2022, the same cutoff for the OECD’s value-added trade data – the other key source for measuring indirect dependence. Even with this limitation, OECD data shows that U.S. import dependence on China on a value-added basis was declining before the COVID-19 pandemic, ticked back up during pandemic-related supply chain disruptions, and resumed its decline in 2022, matching the trend for gross import volumes.
What does this all add up to? The old bilateral model, where U.S. firms designed products and China assembled them for American consumers, is well and truly gone. The new normal is one where Chinese firms sell intermediate components to assemblers in other countries, which then export finished goods to the U.S. This is not an insignificant shift. It demonstrates that Chinese firms have successfully moved up the global value chain to become direct competitors to foreign multinationals. At the same time, final assembly, while the least profitable segment of the value chain, is still economically meaningful: it was the starting point for China’s own decades-long industrialization drive. The fact that U.S. tariffs have pushed this assembly work out of China is a meaningful change. It does not eliminate U.S. dependence on Chinese manufacturing entirely, but it reduces it. And just as China moved from assembly to component manufacturing over time, there are early signs that Vietnam and other emerging manufacturing hubs could follow the same path. There is no inherent reason China must remain the world’s default factory: other nations can develop industrial capacity just as China did.
Building a fully non-Chinese supply chain will not happen quickly or easily, and progress has been slower than headline trade numbers often suggest. But the U.S. has made a clear, promising start, and tariffs on China have been a core driver of that progress. While much of Trump’s trade policy has been haphazard, misdirected and marred by corruption, the decoupling project – which was continued by the Biden administration – has begun to deliver tangible results. It would be a missed opportunity if Trump abandons this progress on his upcoming trip in exchange for trivial short-term concessions like increased Chinese purchases of U.S. soybeans.
