Trade War 2.0: A Modern Thucydides Trap Reshaping Global Trade and Economics

Abstract

This article examines the 2025-2026 US-China trade dispute (“Trade War 2.0”) through the Thucydides Trap, asking whether the confrontation's trajectory since 2018 reflects sustained escalation toward systemic breakdown or a cyclical pattern of escalation and negotiated de-escalation, and what actual economic outcomes reveal about the costs incurred and the durability of ‘strategic decoupling’ as a policy commitment. Drawing on official data, policy documents, court rulings, and contemporary reporting, the article identifies three mechanisms behind the era's escalatory surges: a market-driven retreat from the 145 percent tariff peak of April 2025, a negotiated settlement following the October 2025 rare-earth and semiconductor shock, and a judicial override when the Supreme Court invalidated most tariff authority under IEEPA in February 2026. The economic record shows costs that were real but more contained than either government's rhetoric suggested at the peaks of the crisis: the US economy briefly contracted before still growing 2.1 percent for 2025, and while China met its official growth target, independent estimates put actual growth closer to half that figure, driven more by a domestic property downturn than the trade war. Global trade defied predictions of collapse in 2025, with contraction deferred rather than avoided. The technology track, semiconductors and rare earths, shows none of the tariff track's de-escalatory pattern and remains the confrontation's most enduring front. These findings qualify rather than reject the Thucydides Trap: fear-driven escalation is visible throughout, but negotiated retreat and domestic constraints point to a managed rivalry rather than an inevitable slide toward war, with decoupling pursued selectively rather than comprehensively.