'Data show that direct trade between the U.S. and China has plunged, with China’s share of U.S. imports dropping to roughly 7.5% by late 2025 from the peak of 25% in 2015–erasing more than two decades of growth following China’s 2001 entry into the World Trade Organization.

Yet, underneath the surface, the two giants remain, in many ways, functionally, if grudgingly, entangled. This is the “messy” nature of the divorce we highlighted.

To understand why, I consulted with Neil Shearing, chief economist at Capital Economics and author of "The Fractured Age." His team’s analysis of monthly trade flows reveals that approximately 33% to 40% of the decline in direct Chinese exports to the U.S. hasn’t actually disappeared. Instead, it has been rerouted through third-party countries like Vietnam and Mexico.

“It illustrates how adaptive global supply chains are,” Shearing told me. While high U.S. tariffs have collapsed direct trade, he noted that Chinese exports are still finding their way to the U.S., making a complete decoupling “almost impossible to achieve.”

But don't mistake this rerouting for a lack of progress toward disentanglement. Shearing points out that a “harder decoupling” between the world’s two largest economies has taken root in sectors with heavy national security implications–notably electronics that process vast amounts of data.

Take smartphones: China’s share of the U.S. market has cratered from nearly 70% in 2020 to around 20% today, Shearing said, with India and Vietnam emerging as the primary suppliers. We are seeing this play out in real-time with the coming March 17 deadline for connected vehicles.

As The Wall Street Journal reported, new U.S. rules will soon ban Chinese software in vehicle systems that connect to the cloud—an effort to prevent cameras, microphones and GPS tracking from being exploited by foreign adversaries. My colleague Stephen Wilmot aptly described this as a “test case” for America’s ability to truly disentangle itself from Chinese tech dependencies.

Come to think of it, the speed of this U.S.-China fracturing is nothing short of remarkable. Robert Lighthizer, the trade czar of the first Trump term, long argued that relying on a strategic rival for critical goods was a national security catastrophe. His vision–once dismissed as a radical outlier–has since become the bipartisan baseline.

China's Strategic Pivot

While the U.S. moves to unplug from sensitive sectors, Beijing is also busy insulating its own economy. After years of resisting the “competition” narrative in hopes of remaining a magnet for U.S. capital, China’s leadership has accepted that decoupling is now inevitable.

The goal has shifted from preventing a split to managing its pace while building domestic resilience. Since 2024, Beijing has allocated nearly $1 trillion to achieve self-sufficiency in its “Big Three”--semiconductors, energy and food, our analysis shows.

Consider China’s northeastern grain belt, where huge soybean subsidies now outweigh market logic as Beijing seeks to erase dependence on American farms. Scientists are even racing to develop high-yield seeds to close the long-standing efficiency lead held by U.S. growers.'

On the ground, American companies are also scrambling to adjust to this new reality. Many of them are under intense pressure from customers demanding “zero exposure” to China. While some have successfully reshored some production, other labor-intensive components remain trapped in China because the necessary industrial capacity simply doesn’t yet exist in the U.S.

So, how deep is the divorce? In sensitive areas, the superpowers are actively disentangling. But in the broader consumer market, the “messy divorce” looks more like a complex redirection.

Overall, we are moving from a world of “who can make it cheapest” to one of “who can we trust to make it at all.” It is not a clean severance–but a strategic separation constantly checked by the reality that these two economies have been woven together by decades of shared history.'

Food for thought @Cje95 ?