The US-China trade war set to re-escalate on Sunday, reigniting a conflict that has bubbled underneath the surface for decades. Then, Donald Trump was back in the White House on January 20, 2025. Consequently, the U.S.-China trade conflict is set to pick up right where it left off. This new development comes on the heels of Trump’s pledge to put 60% tariffs on China. This audacious move has the potential to radically rebalance their economies and the global economic playing field.
The trade war started as a war of words, fueled by increasing animus and distrust of China by American policymakers. It crescendoed with one signature on the US-China Phase One trade deal in January 2020. This pact was designed to establish predictability and mutual confidence in military activity between the two countries. It forced China to make structural reforms and change its economic and trade policy direction. Now, Trump is doubling down by re-starting tariff increases, kicking off fears of a new trade war. Such a move would dramatically affect all flows of global trade and supply chains.
The Revival of Trade Tensions
Washington, DC— The US-China trade war has since 2018 been an ongoing conflict characterized by repeated cycles of escalation and negotiation. Tensions between the two countries are rising each day since they sharply escalated in early 2020. This was about the period when they were signing the Phase One trade deal. The deal aims to address large economic and trade disparities. As part of its WTO accession, China has promised to undertake structural reforms to increase its imports from the United States.
Unfortunately, the increased threat of even higher tariffs means we are on the verge of more war. Former President Donald Trump enacted tariff changes during his previous term that increased the trade-weighted average tariff rate on all US imports by approximately 5.5-6.0 percentage points. With his return to office, Trump’s commitment to imposing a 60% tariff on China signals a significant escalation in the trade dispute.
Economic Implications and Global Repercussions
If the US-China trade war truly resumes, we can expect deep and long lasting scars to mark the global economic landscape. With tariffs increasing, we can expect havoc on global supply chains, driving down consumer spending and business investment. These shocks will almost certainly spill over across national borders, impacting economies around the globe.
This projected decrease in outlays is predicted to flow straight into CPI inflation. While businesses contend with rising costs due to tariffs and pass them on to consumers, the public will face rising costs for goods and services. With current tariff levels already nearing their post-World War II high, the damage has already been done. Failure to provide this information will result in a significant economic burden.
Monthly headline Personal Consumption Expenditures (PCE) are projected to hold firm at 0.3%, which suggests that inflationary pressures are still very high. US Personal Spending for February is forecasted to be up 0.5%. This increase follows a -0.2% contraction and represents a positive step toward shaky yet existing growth in light of an otherwise troublesome economic climate.
Navigating Uncertain Economic Waters
As the US-China trade war threatens further escalation, businesses and policymakers alike will have to learn how to fly in an increasingly cloudy economic sky. As either administration explores big economic questions or policies, this battle with tariffs could put up walls between the trade relations and economic cooperation between the two countries.
For those business sectors that depend on supply chains that span the globe, the risk of such disruption means having to plan strategically and adjust accordingly. As tariffs continue to spur rising costs, companies have started rethinking sourcing strategies and looking for new markets to counteract the effects of increasing tariffs. That’s why governments and multilateral institutions are raising their game. Like us, they want to create space for dialogue and negotiation to avoid any further escalation.