USA vs China: Latest Clash Over AI, Trade and Taiwan—What It Means for Global Markets

In a week dominated by sharpened rhetoric and rapid-fire policy moves, the United States and China have plunged deeper into a multidimensional contest that spans defense, technology, and trade. At Singapore’s Shangri-La Dialogue on Saturday, U.S. Defense Secretary Pete Hegseth declared that Washington would “step up efforts to resist Beijing’s plans to dominate and control the Indo-Pacific,” outlining a fresh posture that redistributes forces toward key chokepoints from the Philippines to Palau. Hegseth insisted the United States “does not seek conflict” but warned that “coercion in the South China Sea will be met with coalition strength,” signalling closer alignment with allies such as Japan and Australia. Beijing’s Ministry of National Defense fired back within hours, accusing Washington of “Cold-War thinking” and urging regional partners “not to be used as chess pieces.” Yet across Asian capitals, leaders are already recalibrating. A new International Crisis Group brief notes that the intensifying military rivalry is forcing governments from Hanoi to Jakarta to rethink procurement plans and alliance structures, further tightening the strategic vise on China. Economic friction is accelerating in parallel. Former President Donald Trump’s campaign unveiled a slate of proposals this week aimed at “decoupling supply chains,” featuring a 60 percent across-the-board tariff on Chinese goods and new visa caps for STEM students from the mainland. Although the Biden administration paused select tariffs in March, the White House has tightened export controls on cutting-edge semiconductors and AI chips, moves Beijing condemns as “technological containment.” Observers who hoped last month’s Geneva economic talks would cool tempers were disappointed. In a joint statement, negotiators pledged to “continue dialogue,” but offered no breakthroughs on market access or intellectual-property protection. Analysts say both sides are bracing for a protracted tug-of-war: U.S. companies are accelerating “China + 1” manufacturing shifts to Mexico and Southeast Asia, while Chinese firms race to onshore critical technologies such as lithography machines and advanced batteries. Technology remains the hottest flashpoint. A new paper from Modern Diplomacy warns that rival state subsidies—Washington’s CHIPS and Science Act versus Beijing’s Made in China 2025 reboot—create “a self-reinforcing spiral” of competition that threatens global standards and could fragment innovation ecosystems. Meanwhile, the leak of draft U.S. rules restricting American capital flows into Chinese quantum-computing start-ups sent venture markets reeling, knocking nearly 4 percent off Shanghai’s STAR Market in Friday trading. Beyond capitals and boardrooms, ordinary consumers already feel the pinch. U.S. importers warn that Christmas-season electronics could cost 10–15 percent more if self-imposed tariff pauses lapse this summer, while Chinese travelers face longer wait times for U.S. visas amid tightened background checks. What’s next? Regional diplomats expect fireworks when both countries’ foreign ministers attend the East Asia Summit in Bangkok next month. Whether the talks yield genuine de-escalation or become another stage for public sparring may determine if 2025 heads toward détente—or a deeper chill—in the ever-expanding USA-China rivalry.