The US-China economic relationship is changing rapidly. What we’re witnessing is rising protectionist tensions, and the opening of flammable new trade barriers. Former President Donald Trump was instrumental in igniting the trade conflict that began in 2018. Now, he’s prepared to continue and fully escalate the trade war, promising new, crippling tariffs on China after re-assuming the presidency in 2024. As Congress grapples with a government shutdown that has now reached Day 33, concerns about the economic repercussions of this impasse further complicate the landscape.
The trade war turned nasty when then-President Trump slapped tariffs on Chinese claims. He pointed specifically to unfair commercial practices and intellectual property theft as his rationale. China followed with equal ferocity with a wave of countermeasures. This was done, as an example, by targeting and imposing tariffs on important U.S. exports such as automobiles and soybeans. On January 15th, 2020, the US and China signed the Phase One trade agreement. This deal would have obliged China to make substantial, structural changes to its economic and trade policies. So even with this agreement, our core complaints still have not been addressed.
Stalemate in Congress and Its Economic Implications
As the U.S. government shutdown continues, fears are growing among economic analysts that the effects could be devastating. They fear the dangers that accompany Congress’s extended failure to act. The impasse is over one House GOP appropriations bill. In a related note, Trump is calling on senators to abolish the filibuster rule in order to expedite the vetting process. Failure to act at this level has drawn cries of concern regarding its effects on our national markets and international trade relations.
The immediate fiscal effects are just the tip of the iceberg when looking at the trade war’s repercussions. The extended shutdown adds to worries about a consumer slowdown and the negative effects on investment, two key ingredients to any economic expansion. As the conflict continues, demand for safe-haven commodities such as gold has increased. Investors are looking for safe-haven assets because they are worried about the prospect of an economic meltdown. With global supply chains as intertwined as ever, businesses everywhere, from Fortune 500 companies to start-ups, are feeling the impact of increasingly strained U.S.-China relations. Together, these shifts have directly added to inflation pressures.
Trump’s Plans for Trade Policy
For his 2024 presidential election campaign, Trump has further sharpened his protectionist stance, promising huge, punitive tariffs on Chinese imports. He’s even floating tax rates up to 60% if he gets re-elected. Yet, if misapplied, this declaration could re-instate the last administration’s protectionist playbook. Those policies promised to change global economic behavior through protectionism. This seemingly small step may end up having deep impact. It would only trigger a new round of retaliatory tariffs from China and further damage the flows of international commerce.
It’s already been tried. Now, Trump has proposed banning the flow of cutting-edge artificial intelligence (AI) hardware to China. This proposal further convolutes an already fraught relationship. These moves are part of a larger plan to suppress China’s tech progress while strengthening U.S. leadership in key industries. If these restrictions go into effect, they would dramatically inhibit innovation and raise tensions further. This would lead to a far deeper decoupling of the two economies.
Long-term Consequences of Renewed Trade Conflict
The consequences of a revived U.S.-China trade war are much broader than just tariffs and trade barriers. As many analysts have pointed out, such conflicts usually lead to massive shocks to international supply chains. Fleets will experience greater costs, less efficiency and, in the end, higher costs to consumers. Coupled together, these factors create strong inflationary pressures, making an already precarious economic environment even more so.
As we have seen in past eras of trade wars, this has resulted in a drop in business investment and consumer confidence. These companies are still recovering from the uncertainty of rapidly-shifting tariffs and retaliation. In response, many will likely decide to reduce the size of their programs or delay plans to grow. This tendency toward caution can choke off economic expansion, leading to job loss and diminished financial security.