The escalating economic conflict between the United States and China, which originated in early 2018 under then-President Donald Trump, is poised for a dramatic resurgence. Trump's administration initially imposed trade barriers on China, citing unfair commercial practices and allegations of intellectual property theft—a move that significantly strained bilateral relations. The situation intensified until both nations signed the US-China Phase One trade deal in January 2020. This agreement demanded structural reforms and changes to China's economic and trade regime, aiming to restore stability and trust.
Fast forward to the 2024 election campaign, Donald Trump pledged to reimpose a 60% tariff on China, should he return to office. Following his return to the presidency on January 20, 2025, the trade war is anticipated to resume, picking up where it left off. This renewed conflict is expected to have far-reaching implications on the global economic landscape, characterized by tit-for-tat policies that are poised to disrupt international markets.
The impact of the trade war is already visible, with a notable decrease in spending, particularly on investment. This situation is directly contributing to the rising Consumer Price Index (CPI) inflation. Economists argue that this financial tension fans expectations of further rate cuts by the Reserve Bank of Australia (RBA), as central banks worldwide grapple with the ramifications of these economic policies.
In the financial markets, the USD/JPY currency pair is defending minor bids in Asian trading on Wednesday, struggling to maintain traction above the 149.00 level. The pair faces pressure from a risk-off market sentiment amid Trump's tariff threats, while the Japanese Yen garners support from increased bets on a rate hike by the Bank of Japan (BoJ).
China has not remained passive in this economic confrontation. The Asian powerhouse has taken retaliatory measures by imposing tariffs on several US goods, including automobiles and soybeans. These countermeasures are part of a broader strategy to mitigate the impact of US tariffs on its economy while simultaneously asserting its stance in this prolonged trade dispute.
The US-China Phase One trade deal, initially designed to de-escalate tensions and foster cooperation, now appears to be overshadowed by recent developments. The agreement's intended objective to stabilize relations and restore mutual trust between the two largest economies seems increasingly elusive as both nations adopt aggressive economic policies.
Financial analysts and global market participants closely monitor these developments, understanding that the repercussions extend beyond US-China relations. The interconnectedness of global markets means that shifts in trade policies between these economic giants can trigger ripple effects worldwide, impacting everything from commodity prices to currency valuations.