Gold prices retreated from a two-week low after President Trump and Commerce Secretary Ross statement have set gold prices higher again. As tensions resurface, Japan has hinted at leveraging its substantial holdings of US debt as a bargaining chip in negotiations. Former President Donald Trump’s recently announced new tariffs come into effect in January 2025. This announcement contributes to the ongoing and unprecedented uncertainty and complexity in the trade landscape.
The US-China trade war began in early 2018 when Donald Trump imposed tariffs on Chinese goods, igniting a series of retaliatory measures from China. Both countries experienced economic attacks. In January 2020, they came to a truce of sorts by signing the US-China Phase One trade deal. New events are showing that the tenuous peace is once again under threat.
The Impact of Trump’s Tariffs
On January 20 2025, Donald Trump’s first act will be to slap down a mind-boggling 60% tariff on China. This big change will likely open up a can of worms that had been more or less put to rest after the Phase One deal. Under this accord, China committed to enacting structural reforms to its economic and trade practices. Despite the news, worries about its compliance remain.
The US-China trade war has caused profound impacts on both countries’ economies. Indeed, it resulted in a lack of spending and investment, which in turn pushed inflation numbers even higher in the Consumer Price Index. Economists and analysts are closely monitoring how these new tariffs will affect inflation and consumer behavior in the coming months.
In response to Trump’s announcement of new tariffs, China has warned it is preparing and considering its options. The Chinese Commerce Ministry stated, “The US has recently sent messages to China through relevant parties, hoping to start talks with China.” This shows there may be a still a serious discussion about possible negotiation, despite rising animosity.
Japan’s Strategic Position
Finally, Japan is the most extraordinary actor in the geopolitical landscape—at least as defined by the US, being its largest foreign creditor. Its command reach is $1,125.9 billion. China, by contrast, is the second-largest holder, with $784.3 billion of US debt. Given that total US debt is over $26,025.4 billion, Japan’s sway in this situation cannot be overstated.
Japanese Finance Minister Katsunobu Kato recently suggested that Japan’s substantial holdings could serve as a negotiation tool with the Trump administration. Through dexterous diplomacy Japan seeks to ensure it is shaping the terms of the trade debate. This is especially timely given the US is reconsidering its current tariffs and overall trade policy.
The real significance of Japan’s role might go beyond expanding good economic policy. Japan should leverage its influence over US debt to reduce belligerence between the US and China. This change would better allow Japan to defend its interests on the international trade stage.
Current Trade Negotiations
As the situation continues to develop, both China and the United States are preparing for a new round of trade negotiations. The outcome remains uncertain. For its part, China’s Commerce Ministry has said that sincerity is key in these talks. China is still in the process of reviewing this,” said one ministry spokesperson. This remark highlights China’s need to tread carefully when re-entering negotiations while tariff threats are still in the air.
While President Joe Biden’s administration has maintained many of Trump’s tariffs and even introduced additional levies on Chinese imports, there appears to be an openness to dialogue. The administration’s strategy to be successful, the administration’s strategy will need to successfully balance domestic economic concerns with international relations.
Both countries appear to be preparing to resume, should the opportunity arise. Analysts warn that should they not come to an agreement, trade tensions may quickly spill over into a violent conflict. The stakes are high politically for each economy as they both try to walk through this challenging and unpredictable space.