In a recent phone call, US President Donald Trump and Chinese President Xi Jinping focused on the ongoing trade dynamics between their nations. This conversation occurred just a few weeks before their initial meeting in South Korea at the end of October. It reflects their long-term willingness to talk, given their traditionally fraught relationship. The conversation was spurred by huge stimulus-related transitions and spending. A tangled web of trade barriers, tariffs, and agricultural products underscored just how complicated US-China relations had become.
The trade war between the two superpowers started in early 2018. The tariffs blessed by the Trump administration were aimed specifically at China, over claims of unfair commercial practices, intellectual property theft and other grievances. Then, China responded with retaliatory tariffs on a variety of US products, such as automobiles and soybeans. This resulted in a domino effect of retaliatory policies. Together, these actions have radically shifted the global economic landscape.
The Ongoing Trade War
The US-China trade war has imposed significant externalities on actors outside the US and China. It has temporarily derailed global supply chains, creating a hollowness of reduced consumer spending and investment. The protracted conflict has further increased the already high CPI inflation in the U.S. This scenario is a powerful demonstration of how globally intertwined our economies truly are.
On January 15th, 2020 Trump’s administration signed the Phase One trade deal with China. This treaty was meant to bring back confidence and security between the two countries. The deal called for China to make far-reaching structural reforms and other changes to its economic and trade regime. The deal left significant underlying tensions unaddressed, and moves over the last few months have reopened fears of growing trade barriers.
After Joe Biden’s inauguration, he kept the tariffs that Trump imposed and went so far as to implement new tariffs on Chinese products. This remarkable continuity of policy is a testament to how complicated US-China relations are to navigate. It sheds light on the difficulty both countries face in addressing their respective economic complaints.
A New Era of Negotiations
During their recent phone conversation, Xi Jinping emphasized the need for both countries to “lengthen the list of cooperation and shorten the list of problems.” This crafted statement balances the administration’s commitments to both prioritizing equity and finding common ground while staving off significant opposition. The leaders engaged in numerous salient topics including the opioid crisis stemming from fentanyl, soybeans and other agro-products—touchpoints that tremendously affect both economies.
Trump’s return to the White House on January 20, 2025, as the 47th US President has reignited concerns over the US-China relationship. He’s doubled down on radical campaign promises, such as promising to reenact 60% tariffs on China if re-elected. Economists and policymakers should be raising an eyebrow at these announcements. They are still concerned about the economic consequences of the return to the very aggressive trade policy.
“We have done a good, and very important, deal for our Great Farmers – and it will only get better.” – Donald Trump
Implications for Global Economy
The effects of the US-China trade war are far-reaching, not just for bilateral relations, but for global markets. While each country steps up with thickening barriers against the other’s exports, companies of all shapes and sizes everywhere are left struggling against a wave of unpredictability. This lack of predictability makes it difficult to make necessary investment decisions and impedes the growth of our economy across all sectors.
Furthermore, supply chain disruptions from tight labor markets have caused inflationary pressures across various economies. Firms that rely on Chinese manufacturing or raw materials have been hard-hit by the delays and increased costs. In turn, they are unloading these added costs onto drivers. As tariffs make their marks on trade flows, some analysts are already cautioning about lasting impacts on the global economy’s stability.