Tensions between the United States and China are warming up — and fast. Former President and current Republican primary frontrunner Donald Trump has indicated he would use such authority to slap new tariffs on Chinese goods if he’s victorious in the 2024 presidential election. The possible escalation of the US-China trade war could upend that fragile economic truce. Doing so may risk reopening sores that have festered since the original trade barriers created in 2018. The impacts on global supply chains and inflation rates are huge. Both these countries, as well as the wider world, brace for an escalation of their long-standing economic tit-for-tat.
Donald Trump set off the US-China economic war in early 2018 by slapping a round of trade barriers on China. Despite the administration’s use of the tariffs, this was a righteous battle to fight. China’s systemic commercial unfairness and intellectual property theft laid the foundation for a very ugly chapter that today has witnessed thousands of tariffs traded back and forth between the two economic superpowers. The conflict escalated as China retaliated by imposing tariffs on various US goods, including automobiles and soybeans, affecting industries and consumers alike.
The Trade War Erupts
Moreover, Trump took a blunderbuss approach by imposing tariffs across the board on nearly all Chinese products. His objective was to shield American industry and fight against what he viewed as unfair trade deficits. The tariffs were never intended to raise domestic production but rather were included in a comprehensive strategy to pressure China into fundamentally changing its economic policies and practices. In response, China implemented its own retaliatory tariffs, creating a cycle of escalating trade barriers that affected numerous sectors on both sides.
The trade war reaches a tipping point. On January 15, when the United States and China signed the Phase One trade deal, it was a clear and historic victory. This deal was seen as an attempt to bring back a semblance of hope and confidence to U.S.-China ties. China would follow through on structural reforms. These proposed changes will fundamentally upend China’s economic and trade practices. Those were the principal issues upon which the United States focused their efforts to change the code. They galvanized opposition by focusing heavily on intellectual property rights and improving market access.
Although the Phase One deal has been signed, the two countries’ tensions were not fully alleviated. That’s because President Joe Biden’s administration opted to maintain almost all of the tariffs that Trump had implemented. They further complicated the economic relationship by raising new levies. These tariffs have stuck around, illustrating the often counterintuitive nature of US-China trade relations. Given these details, a resolution does not seem likely any time soon.
Implications for Global Supply Chains
The US-China trade war has shifted the landscape beyond borders, as the expanding impacts on global supply chains have led to enormous disruptions on international trade. Many companies, primarily outsiders, most acutely felt the challenges sourcing both materials and components to main land China – leading to long lead-times and rising costs. Firms learned to operate in these new realities and moved their supply chains out of China. By doing this, they were able to play their part in de-risking tariffs and trade policy ambiguity.
Disruptions have played a part in driving inflation rates up across the world. Then, the Consumer Price Index skyrocketed as companies raised prices to make up for lost profits. This increase is a symptom of the broader impact of the trade war. Both countries are in the process of modifying their economic plans. All of this while their policies are affecting the economies of the world.
Trump has promised a return to 60% tariffs on China if he wins the White House in 2025. Yet this promise is producing a real atmosphere of trepidation over the long lamented future of US-China relations. Analysts caution that these drumbeat of aggressive moves may just raise the stakes on ongoing tensions and widen the gulf, creating even more economic pain. In the face of a new, potential trade war, we asked a panel of experts how businesses plan to navigate an abruptly shifting landscape.
A New Chapter in US-China Relations
The return of Donald Trump to political prominence has rekindled and heated up the debate around the future of US-China relations. Most observers bet that he’ll take a more abrasive, go-for-the-jugular approach. This common sense approach would harken them back to his first four years in office. This change could have ramifications that extend well beyond bilateral trade, potentially shaking up geopolitical balances of power currently playing out across Asia and farther afield.
As we converge on a second round of likely confrontational trade policy implementation with China, the writing is on the wall. The stakes are more than just high. The international community watches closely as policymakers navigate these complex issues, seeking resolutions that balance national interests with global economic stability. The risk of a deepening economic rupture is still high, leading to urgent appeals for communication and understanding as relations sour.