Donald Trump, 47th President of the United States, will be returning to the White House on January 20, 2025. That power shift with mainland China has recently flared tensions between the US and China. His administration’s commitment to imposing 60% tariffs on Chinese imports during the 2024 election campaign has intensified the already strained economic relationship. Increased tensions from the re-escalated US-China trade war would have the potential to upend global supply chains. It will risk further economic collapse for many countries.
Having deep domestic and international market ramifications, the new resumption of the trade war has once again shaken up the economy. Combined with worries about inflation and a return to austerity, the combination has many pundits and analysts hoping to see how this new short war will form. This is indeed the message that US Treasury Secretary Scott Bessent has conveyed, that the US government is engaged with China. Now, the ball is firmly in Beijing’s court as to what they do for de-escalation…
The History of US-China Trade Relations
US-China economic conflict has been simmering since early 2018. That’s when China retaliated with trade barriers of its own and when President Trump first targeted China with trade barriers. He condemned Beijing for their years of unfair commercial practices and IP theft which he said weakened American businesses. As retaliation, China targeted major US exports to China with tariffs. This included cars and soybeans, further raising the stakes in the ongoing trade war between the two economic titans.
Even as both sides sought to negotiate an end to the trade war, it continued on. In January of 2020, the two countries signed the US-China Phase One trade agreement. This agreement was an attempt to reduce friction and set fundamental ground rules for future interactions. This agreement failed to appreciate the depths of the trade imbalances and the intellectual property concerns. Consequently, it doesn’t prevent violations, but only sets stage for future legal battles.
Under President Joe Biden, the U.S. kept most of Trump’s tariffs in place and went on to add more tariffs of his own, deepening the cycle of economic warfare. Legacy tariffs and new barriers established under each administration have created the perfect conditions for a second trade war. Honestly, it’s Trump’s leadership that is fueling this growing crisis with each passing day.
Impacts on Global Economy and Inflation
The re-ignition of the US-China trade war — this time, ostensibly, over semiconductors — has deep ramifications in our interconnected global economy. According to analysts, continued tariff battles will only amplify turmoil in global supply chains. Consequently, manufacturers and consumers would end up paying more. Illustratively, trade tensions can have a sizable effect on inflation. This can be clearly seen in the Consumer Price Index (CPI), where inflation is surging prices in the context of a collapse in consumer spending and investment.
As tariffs go up, American businesses are left to absorb higher costs for imported products. This compels businesses to eat costs or pass them onto consumers, fueling inflationary headwinds. As the economists pointed out, continuous trade disputes can freeze economic development at best. Rather, this new uncertainty is bound to lead to a fall in consumer confidence and spending.
A new trade war would be a cause for serious alarm. It has the potential to affect not only US-China relations but the changing nature of the global economy. Countries that are highly dependent on commerce with one side or the other could be caught in the middle, making international trade all the more messy.
The Path Forward in US-China Relations
BlackRock’s Scott Bessent referred to these positives in his recent notes. He did tell Bloomberg that Beijing needs to be the one to take the first move in de-escalating the tariff war. It was the ongoing trade imbalance between the US and China that first raised tensions. It’s important that both parties continue to have good faith conversations to resolve this dispute.
Looking ahead, experts recommend that positive engagement may be able to reduce some of the negative impacts of the ongoing trade war. Dealing with complaints of IP theft and other unfair industrial practices are important. Setting this high bar could serve as a catalyst for similar agreements in the future. Without the constructive engagement and collaboration from both parties it will be hard to envision a positive outcome.
Donald Trump’s administration is opening a new and troubling chapter in its engagement with China. Stakeholders across the globe are watching this situation very closely. Retaliatory tariffs can be met with drastic economic backlash. This terrifying potentiality has a lot of people pondering the future on international trade power balances.