US-China competition is the single most important geopolitical driver in the global economy, and the driving force in the decoupling of global supply chains.

The power struggle between the two superpowers is actively shaping regulation across geographies and industries, with the tech sector standing at the forefront of this disruption.

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However, compared to the last few years, domestic pressures in both countries will force foreign policy to take a backseat in 2024.

Technological competition is at the core of the US-China trade war

The US-China trade war began as a national security concern to Huawei’s alleged links to the Chinese Communist Party (CCP) and ability to intercept, use, and share data of US citizens and companies.

Chinese foreign policy being highly reactive turned it into a tit-for-tat trade war with more sanctions ensuing as the Uyghur genocide, Hong Kong protests, and the Russian invasion of Ukraine deepened ideological differences.

AI has been targeted

In reality, US sanctions on China were more a part of Trump’s isolationist era policies that sought to improve the economy by promoting US companies and reshoring manufacturing jobs back to the US, than any cyber threat China posed to the US. The trade war was then continued by the Biden Administration to prevent China’s inexorable rise as a global technological power. Since then, the trade war has targeted the artificial intelligence (AI), batteries, and electric vehicles (EVs) industries.

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Both countries are trying to secure their supply chains while simultaneously aiming to exclude and weaken the other’s economic and technological standing. However, it is misleading to view the rivalry as being purely about technology. The trade war reflects a broader struggle for power and influence. In a multipolar world, the US and China use their respective political, economic, and social influence to shape tomorrow’s world, and technology is only one means to exert that power.

US-China domestic interests dominate 2024

In November 2023, the Biden-Xi in-person meeting in San Francisco signaled a temporary lessening in US-China tensions. This alleviation will not last long as political triggers, such as the Taiwanese elections, will reactivate tensions. Significant government-led investments into new technologies and new manufacturing plants by both sides will also encourage more competition. However, compared to the last few years, domestic pressures in both countries will force foreign policy to take a backseat in 2024.

The Biden administration is unlikely to extend or introduce further trade restrictions as:

  • Domestic interests will take precedence over foreign policy concerns. On the campaign trail, Trump and Biden will prioritize domestic concerns and policies to attract voters.
  • The preamble to the elections will increase the risk of market volatility. The US fiscal institutions will try to reduce the impact of the elections on the market as much as possible and stabilize the economy. A major concern will be keeping unemployment rates low. US-China competition could exacerbate market volatility.
  • US-China tensions will not feature as a point of contention in the November elections, as most trade restrictions have received bipartisan support.

China is unlikely to respond to provocation as:

  • China’s sluggish economy will require Beijing to focus on domestic growth. China’s strong year-on-year (YoY) gross domestic product (GDP) growth over the last two decades has come to an end. A variety of factors have contributed to this new reality, including pandemic restrictions, the ongoing real estate liquidity crisis, and deflation. Beijing recognises the impact China’s sluggish economic activity is having on Chinese businesses and is doubling down on the fiscal stimulus packages that started in 2023.

China will focus on stabilising its new economic model

This new economic model focuses heavily on tech investment and dominance of global markets over its legacy property-led growth model.

However, this model is not conducive to fast economic growth, therefore lacklustre growth will persist in the coming years. Worsening sanctions between the US and China could further impede domestic efforts to solidify the new economic model and stabilise the economy.