Recent analyses underscore the growing military and economic conflict between the United States and China. These tensions are a result of increasing anxiety around China’s technical manufacturing capacity. In 2020, that share stood at a breathtaking 35.4 percent of all global manufacturing output. In contrast, the United States came in dead last with a distant 11.8 percent share. This dramatic gap between them frightens US leaders and economists. They are understandably alarmed that not only is Chinese industrial output huge, but that it outstrips the next nine countries put together.
These advancements have occurred against a backdrop where the geopolitical climate is becoming more and more tense. China’s manufacturing output has surged since the onset of the trade conflict, now standing alone with a remarkable 145 percent increase compared to levels before President Trump’s second term. Unexpected, not without precedent, the US government has just rescinded counter-tariffs, which had only been imposed two days prior. It leaves in place a 10 percent tariff on all imports from countries, except for Canada and Mexico. The remaining automotive and steel/aluminium sectors are still shouldering the full weight of a 25 percent tariff.
The ongoing tension reflects a broader economic theme: the persistent weakness of the US dollar. Analysts note that fears are mounting over the potential for a deepening China-US trade conflict to trigger a recession in the United States. Most stable—if you consider an increase of tariffs on Chinese imports by China from 84% to 125% extremely volatile. This move has increased alarm and escalated tensions between the two countries’ trade relations.
Volkmar Baur, an FX analyst at Commerzbank, emphasized the critical nature of these developments:
“The fundamental problem remains: geopolitically, the US and China are competing against each other, and in this context, economic security takes precedence over economic cooperation for both countries.”
The impact of these retaliatory tariffs has left the US dollar market also reeling under great stress. The long EUR/USD currency cross has moved dramatically. It is now above 1.1400, closing at its best level since February 2022. This sustained volatility is symptomatic of the wider investor sentiment, as safe-haven flows look for a home during this heightened turmoil.
Gold prices have continued their seemingly unstoppable rally, today hitting a new all-time high of over $3220 during European trading hours. The precious metal’s ascent reflects the growing uncertainty coursing through markets. Safe-haven assets, including gold, are being sought after by investors spurred by rising trade wars. On top of that, BTC and ETH prices are still flying high, recently breaking $80k and $1,500 again.
That harsh fact is emblematic of the challenges US policymakers face. They have to contend with a landscape very much shaped by the contours of China’s economic dreams. FAS Analysts expect that balancing these two forces will get progressively harder.
“Four developments in particular remain a thorn in the side of the US. First, China’s industrial production (more precisely: manufacturing output) is now larger than that of the next nine countries combined.”
The ramifications of these changes go well beyond trade tariffs and the depreciation of China’s currency. Yet with each country competing for dominance in the manufacturing sphere across the globe, prospects for positive economic engagement seem bleak. Each country is putting economic security first, regionalism second and multilateralism last, creating a disjointed and difficult trade environment.
“All in all, it is likely to be difficult for the US and China to find a common denominator. China will not want to be dictated to by the US on what its industrial policy should look like or how it should rebuild its growth model.” – Volkmar Baur
As the landscape continues to develop, advocates, decision-makers, and stakeholders from all sectors—including private industry—will need to stay tuned and stay attuned to shifting sands. This convoluted network of tariffs set by each country will only keep hurting American businesses and consumers. What’s more, the unpredictability of future trade policies may threaten investment decisions and dampen emerging economic growth.
As the situation evolves, stakeholders across various sectors will need to remain vigilant and responsive to changing dynamics. The intricate web of tariffs imposed by both nations will continue to affect businesses and consumers alike. The uncertainty surrounding future trade policies could hinder investment decisions and stifle economic growth.