The still-raging US-China trade war, which first flared up in early 2018, still colors economic and political forces worldwide. President Donald Trump imposed trade barriers on China, marking the beginning of a tumultuous relationship between the two largest economies. In January 2020, the Phase One trade deal was finally signed. Notably, this agreement sought to institute structural reforms to China’s domestic economic and trade policies. This strategic agreement required each nation to mutually reestablish stability and trust. Even intractable challenges and retaliatory attacks don’t seem able to douse that hopeful aspiration.
Now, President Trump has started signaling a return for his aggressive trade policy. He’s pledging to slap 60% tariffs on all Chinese imports if he ever retakes the White House. Both countries are preparing for a decisive Trump-Xi Jinping meeting, set to take place in South Korea in early November. The result of this bilateral meeting has the potential to shape the course of their quickly growing economic relationship.
The Roots of the Trade War
The US-China trade war started in early 2018. During the presidential campaign, President Trump raised these issues when he accused China of unfair commercial practices and stealing intellectual property. His administration slapped a wave of punitive tariffs on Chinese imports, leading China to retaliate with their own countermeasures. In retaliation, China hit American products—of all things, automobiles and soybeans—with tariffs. This strategic relocation was designed to mitigate the economic repercussions of US policies.
The Phase One trade deal was a half-hearted, narrow-focused attempt to cut off branch—pun intended—to growing fires threatening both countries. This deal forced China to make legally binding structural reforms, an extraordinary achievement. These reforms are intended to increase transparency and fairness in its economic system. The agreement was largely lauded as a breakthrough towards resolution. It didn’t go far enough to address the core issues that led to the trade war in the first place. Tensions in the bilateral relationship grew further as each country’s leadership tried to assert their economic priorities.
Continuing Economic Disruptions
The trade war continued to intensify, leading to significant dislocations in global supply chains. This crisis was deepened by the adverse effect placed on international trade and investment. Every time companies paid more because of the tariffs, that took money away from consumer spending and lowered economic growth overall. The impacts extended far beyond the streets, with the private sector scrambling to change plans as policy priorities changed.
The trade war helped provide new wind at the back of the United States’ rising inflation rate. This trend is reflected in the Consumer Price Index. The continued escalation of tariffs on imports resulted in higher prices for consumers that further squeezed already tight household budgets. We economists feared that continued escalation would dampen the recovery and usher in more turmoil in financial markets.
Despite the obstacles and turmoil, both sides engaged further in search of new opportunities to exchange messages. In recent discussions, there appeared to be a preliminary consensus on critical issues such as export controls, fentanyl trafficking, and shipping levies. These discussions were significant, as they represented a clear break from the emerging pattern of collaboration despite contentious relations.
The Upcoming Meeting and Potential Outcomes
As President Trump and President Xi prepare for their upcoming meeting in South Korea, many observers are keenly watching for signs of progress. Analysts are saying that this meeting might be a turning point in charts the course of US-China relations. Trump’s demonstrated willingness to lower tariffs on Chinese goods. He’s poised to take that leap if Beijing is willing to commit to halting the exportation of fentanyl precursor chemicals.
Not least because a new framework or agreement would mark a significant stepping-stone in warming relations between the two nations. Our skepticism could not be higher. True to history, negotiations inevitably revert to stop gaps rather than a permanent solution. What’s at stake The stakes are huge as both leaders face severe domestic political pressure and the ever-present threat of increased hostilities.