The United States and China are once again on the brink of a trade war escalation as President Donald Trump, who resumed office in January 2025, prepares to impose an additional 10% tariffs on Chinese imports starting March 4. This move, reminiscent of the initial trade conflict that ignited in early 2018, has prompted China to contemplate countermeasures against the United States. The trade war, which initially began when Trump accused China of unfair commercial practices and intellectual property theft, had previously escalated until the US-China Phase One trade deal was signed in January 2020. However, Trump's recent election pledge to impose 60% tariffs on China during his 2024 campaign signals a potential resurgence of trade tensions.
In 2018, President Trump's decision to set trade barriers on China led to a tit-for-tat response, with China imposing tariffs on multiple US goods, including automobiles and soybeans. The escalating trade war prompted both countries to negotiate and eventually sign the Phase One trade deal in January 2020. This agreement required China to implement structural reforms and changes to its economic and trade regime, aiming to restore stability and trust between the two nations.
Despite the temporary relief provided by the Phase One deal, trade tensions have resurfaced with Trump's return to office. The upcoming tariffs and China's potential countermeasures are expected to further strain the already fragile global economic landscape. The trade war is causing disruptions in global supply chains and leading to reduced spending, particularly in investment. Moreover, it is contributing to inflation in the Consumer Price Index, creating additional economic challenges.
The impact of the trade war extends beyond the US and China. The European Union is also taking measures to address the situation, although the timing of these actions remains uncertain. Meanwhile, upbeat Chinese Purchasing Managers' Index (PMI) data is adding pressure on the US Dollar, helping keep the EUR/USD currency pair afloat.
In addition to tensions with China, President Trump has signaled his intent to enact 25% tariffs on Canada and Mexico. These tariffs are set to take effect when a one-month delay expires next Tuesday, further complicating North American trade relations. It is worth noting that former President Joe Biden, who served between Trump's terms, maintained existing tariffs and introduced additional levies during his presidency.
China's evaluation of countermeasures in response to the anticipated March 4 tariffs indicates that the trade dispute may once again reach a boiling point. Both nations appear poised for a renewed conflict that could impact global markets and economies. The situation remains fluid as each side assesses its options and potential ramifications.