The ongoing trade conflict between China and the United States has driven significant internal transformations within Chinese enterprises, leading to reforms, supply chain restructuring, and heightened technological innovation since 2018.

In response to U.S. tariffs, Chinese firms are relocating production to third countries, particularly in labor-intensive sectors like apparel and electronics, to circumvent these trade barriers.

Despite the decoupling, many Western multinationals continue to engage with the Chinese market, indicating a landscape of selective decoupling rather than a complete severance of ties.

Firm-level transformations are contributing to economic decoupling, highlighted by declining trade and investment ties between China and the U.S., as well as a shift towards 'China-free' supply chains by multinational corporations.

Technological innovation among Chinese firms has accelerated in response to U.S. export controls and sanctions, with a strong emphasis on achieving self-sufficiency in critical technology sectors such as semiconductors.

The Chinese semiconductor industry has experienced substantial investments in research and development and capacity expansion since 2018, with companies like Cambricon and Loongson becoming largely decoupled from the U.S. market.

China's push for technological autonomy has resulted in reduced dependence on imported high-tech products, with a noticeable decline in imports of mechanical and electronic goods since 2020.

The trade war has created a feedback loop where increased innovation in China leads to further U.S. trade protectionism, intensifying the competitive dynamics between the two nations.

Chinese firms are increasingly evaluating investment opportunities based on perceived political risk, favoring greenfield investments in politically neutral countries.

Chinese importers have started sourcing agricultural products from suppliers in Brazil and Argentina, while companies like Huawei are increasingly utilizing domestically produced components to lessen reliance on U.S. technology.

The decentralized nature of these transformations suggests that even if tensions between the U.S. and China ease, the changes made by enterprises are likely to be sticky and irreversible.

Capital-intensive sectors, such as automotive manufacturing, are more hesitant to relocate due to the complexities of their supply chains and strong domestic market demand.