China’s Commerce Ministry has recently clarified that there have not been any economic and trade negotiations between China and the United States. Tensions are still running high between the two competing economic superpowers. These damaged feelings have been ongoing since the signing of the US-China Phase One trade agreement deal in January 2020.
The Phase One deal was intended to address various economic issues, including structural reforms and changes to China’s economic policies. The project was intended to rebuild safety and confidence among the two counties. Since the order was put in place, the two have soured considerably.
Background on US-China Trade Tensions
The trade war initiated by US president Donald Trump against China has peaked in recent weeks. Starting the current round of tensions, in early 2018 he announced tariffs on Chinese imports. The US government defended the tariffs as an absolutely necessary response to bad-faith mercantile practices. They wanted to fight theft of their intellectual property. This hardline approach opened a long trade conflict. Here’s why it mattered so much for both countries and the global economy.
In response, China struck back by placing tariffs on a slew of US goods, such as cars and soybeans. The tit-for-tat trade war tariff contest painted an exceedingly uncertain trade environment. This caused a huge knock-on effect in global supply chains and consumer spending.
The US-China Phase One trade agreement was at least partially an attempt to calm some of these frictions. China has to buy a lot more US goods. Indeed, it must make good on its call to implement bold reforms that will increase market access for American companies. Even with these initiatives, the relationship between the two countries has continued to grow more contentious.
“There have not been economic and trade negotiations between China and the US.” – Chinese Commerce Ministry
Current State of Relations
Though that was the original hope of the Phase One deal, ongoing tensions have sullied anything resembling an opening for positive discussion. The Chinese Commerce Ministry’s recent statement emphasizes the lack of negotiations, signaling a broader unwillingness to engage unless there is a sincere effort from the US side.
China’s call for sincerity is an acknowledgment of its exasperation with prevailing US policy, especially the posture that insists on keeping most high tariffs. President Joe Biden has kept many of the tariffs imposed by his predecessor in place and even added new levies. Consequently, China feels that the current environment is not conducive for constructive dialogue on substantive issues.
Though more sanguine overall, the US’s approach has largely settled on a reactive stance geared at countering alleged unfair practices from China. With President Trump laying the groundwork for a return to the White House in 2025, this record looks ever more critical. Most people know that the new “president” promised 60% tariffs on the Chinese when he was campaigning. This latest escalation makes it clear that any hope for calming these rising tensions is even farther from realization.
Impacts on Global Economy
The continuing trade war has had more broad and lasting effects outside of the bilateral context of China and the US. It strangled global supply chains and helped fuel inflationary pressures that we see in the Consumer Price Index. Firms on both sides of the border have incurred higher costs, which have caused them to cut back on total investment.
Analysts are cautioning that tensions are growing and likely to continue to do so without a clear resolution. Should this scenario play out, we might witness the reinvigoration of tit-for-tat policies, harming both countries’ economies and reverberating through global financial markets. Pandemic or not, the interconnectedness of the global stage means that the choices made by both the US and China shake through global trade connections.