This escalating economic conflict between the United States and China originated in the spring of 2018. That battle is poised to heat up even further as both countries prepare for another round of U.S.-China trade negotiations. It’s a welcome change after a decade of tariffs and retaliatory tariffs that have pitted neighbors against each other. The future negotiations are largely a product of the U.S. pushing to get them started. They want to address some of the lasting impacts of the trade war and chart a path forward.
On January 15, 2020, the US and China concluded their protracted trade conflict by signing the Phase One trade agreement. Yet this agreement required profound structural changes in China’s mercantilist economic and trade policies. The deal was an attempt to calm waters and build mutual goodwill between the two countries. China answered immediately to the first tranche of US tariffs. They retaliated against American exports, like automobiles and soybeans, with their own tariffs making the trade environment even more complex.
Even after President Trump signed the Phase One deal, tensions did not quickly ease. President Joe Biden has maintained most of the tariffs that Donald Trump initiated. In fact, he’s been the one to introduce new levies since he took office. Trump has pledged to slap a mind-boggling 60% tariff on Chinese goods for his 2024 presidential campaign. This striking step makes us fear what worst step might be next in the ongoing trade war.
The Impact of Tariffs and Retaliation
The US-China trade war has turned out deeply detrimental not only to both economies but also international markets. As these tariffs took effect, so did the spending—especially in the form of investment—start to dry up. Experts predict that this continued conflict could disrupt global supply chains and contribute to inflation, particularly affecting the Consumer Price Index.
China’s retaliatory response to US tariffs has been on the watch list. The view from Beijing The Chinese government has signaled that they intend to fight hard to protect their interests in ongoing negotiations. “We will safeguard our interests in talks with the US,” said a spokesperson from FXStreet. The resulting cycle of reciprocating, tit-for-tat policies has left both countries deeply suspicious of the other’s motives. This toxic climate endangers upcoming negotiations.
This week, global markets were buoyed by optimism ahead of public US-China trade talks scheduled for September. In response, global markets have turned upside down. Indeed, gold prices underwent a deep correction from two-week highs, a clear indication of investor sentiment about the prospects of these high-stakes talks.
Future Prospects: Dialogue and Economic Stability
Given the new climate of understanding, each country has brought a cautious optimism to the negotiating table. And China has recently restated its own desire to pursue dialogue with the US. “We have always been open to dialogue with the US,” stated a representative from FXStreet. This feeling indicates a sincere hope for more productively engaged adults to come together, even though the dark cloud of prior negotiations hung above.
Analysts caution that without a commitment to de-escalation and mutual respect in negotiations, achieving meaningful progress may prove difficult. It will be no simple task for the US to reassure China without succumbing to new domestic economic protection and political Tsunamis.
Unfortunately, the timeline for these negotiations is still up in the air. Now, as Trump almost certainly resumes office January 20, 2025, observers are hoping for a different playbook that would alter the trade debate landscape entirely. Should Trump follow through on his proposed tariffs, the nascent trade war would likely escalate. This escalation will have far-reaching implications for both economies and global markets.