America’s trade war with China is about to get a lot more complicated. If Donald Trump is back in the White House on the 20th of January 2025, violence and conflict will be rising. We are all feeling the impact of the trade barriers that the former president set against China in the days of early 2018. Now, he’s equally intent on slapping even higher tariffs on Chinese imports. Both countries now are coming into focus on the trade agendas. They are still dealing with the economic consequences of their previous conflicts such as high inflation and strain on global supply chains.
This breakdown of the economic conflict between the US and China began in 2018. Trump had blasted Beijing for engaging in unfair commercial practices and stealing IP. To these allegations, as you may remember, China responded in kind by placing tariffs on a wide array of US products, from cars to soybeans. This constant tit-for-tat retaliation kicked off what has expanded into a complex and damaging trade war.
Even with the increasingly antagonistic stimuli over this summer, Trump has reportedly been bullish on making a deal with China. He said he’s feeling upbeat, with a “very good” chance of reaching a deal. He stressed that any deal with Beijing has to be in America’s interest. On January 15, 2020, the two countries signed the Phase One trade agreement. It stipulated that China make significant structural reforms and change its economic and trade practices. This long-negotiated pact was intended to return certainty and goodwill to the relationship between the two largest economies in the world.
The Phase One Trade Deal
No matter how long it is upheld by either side, the Phase One trade deal was a key milestone in US-China relations. It pressurized China to make greater commitments to purchase more US goods and to adopt reforms that would help protect intellectual property rights. To achieve this, the deal aimed to do more than just cool current tensions — it would create greater, long-term interoperability between the two militaries.
Although the deal certainly opened a door to mending relations between both sides, it wasn’t an immediate end to tariffs by the agreement. Trump’s successor Joe Biden decided to keep the tariffs in place and went on to introduce new tariffs on Chinese imports altogether. This largely uninterrupted status quo in trade policy is a sign that the actual problems have not yet been addressed.
Once again, Trump is preparing for a return to power. He’s promised to slap a mind-boggling 60% tariff on all Chinese imports if he is restored to the presidency. To say that such a move wouldn’t spark a major offense-defense confrontation would be an understatement. Production has ceased at home and analysts are warning that this situation will shatter global supply chains even further. The reality is that inflationary pressures will worsen throughout all sectors.
Economic Impacts of the Trade War
The US-China trade war has caused a ripple effect not only on both economies but on the global market. By imposing tariffs on many goods made in China, the Trump administration caused destructive shocks to industries’ supply chains, forcing firms to re-evaluate where they produce their goods. Almost all sectors have faced the impacts of rising operational costs, which have directly affected consumer goods pricing.
The threats and actual disruptions from the trade conflict have pushed up inflation as shown in the CPI. Soaring inflation on consumer products has forced countless families to reevaluate their expenditures. As a result, they are reducing state and local government spending on everything except for strictly essential items. This decline in consumer demand can have a trickle down impact on economic growth and investment.
Recognizing these challenges, U.S. officials have taken the initiative to engage in discussions with their Chinese counterparts. Reports from Beijing suggest that discussions are underway as both sides seek to navigate the complex landscape created by years of tariff disputes. The need for this communication has never been more urgent, as both countries increasingly weigh heavy domestic pressures on economic growth and stability.
Future Trade Relations and Regional Implications
The fate of US-China trade relations already looks grim as Trump gets ready to take charge a second time. Given his administration’s renewed focus on executing the most aggressive tariffs yet, that push is likely to set off a third round of retaliatory attacks from Beijing. Overreactions and retaliatory responses would only further raise the risk of military confrontation while compounding the damage to international economic order.
The challenge is exacerbated by the international context including the recent high level of Mexico’s outreach to the United States. Mexican President Claudia Sheinbaum should welcome the discussion with Trump on trade bilateral issues. Specifically, she emphasized how efforts done in regional partnerships would be key to writing the next economic policy.
As these developments unfold, businesses and consumers alike are left with unanswered questions about the sustainability of their supply chains and pricing structures. Not only would renewed tariffs introduce inflation, inflation fears alone would introduce tremendous uncertainty into our ongoing economic recovery. This is particularly concerning given that global supply chains are still reeling from the shock of pandemic-induced disruptions.