The complex relationship between the United States and China has entered a new phase as Donald Trump resumed the presidency, igniting old trade tensions that could have significant implications for the global economy. Trump is shaking things up with his 2024 presidential campaign. He’s already promised to place a 60 percent tariff on Chinese imports to underline his China hardliner credentials. This return has raised a new storm of worry about disastrous and misdirected US trade policies and the effects they’re having on international markets.
In early 2018, President Trump took the calendar and began laying the groundwork for an all-trade-out war by slapping up trade barriers against China. He used unfair commercial practices and intellectual property theft as justification for these measures. In response, China hit back with tariffs on dozens of U.S. products from automobiles to soybeans. The resulting trade war ushered in a new era of uncertainty, which hurt businesses and consumers across the board.
The US-China Phase One Deal
Conflict soon escalated. In January 2020, the two nations signed the US-China Phase One trade agreement, providing only a short-term fix. This bilateral agreement required China to undertake specific structural reforms and other significant changes to its economic and trade policies. Though it provided a temporary ceasefire from violence, the lack of political will prevented true change – specifically, addressing the root causes.
Even after Trump left office, President Joe Biden kept the status quo with tariffs still in place and went so far as to impose new levies. Indeed, the Biden administration has made it clear that they are troubled by China’s trade practices. Moving off of changing well-established trade relationships is no simple challenge. Trump’s optimism about negotiating a fair deal with Chinese President Xi Jinping contrasts sharply with Biden’s cautious approach.
The trade deal’s early success was unable to calm the waters for very long. As Trump returned to power as the 47th President of the United States, he reignited fears of a full-scale trade war. His bold proposal for a 60% tariff on Chinese imports has raised eyebrows among economists and policymakers, who worry about the potential ramifications of such drastic measures.
Impact on Global Supply Chains
The implications for global supply chains are severe. Businesses, as we have documented, have already experienced disruptions that have caused pullbacks in spending, particularly in investment. These shocks have a direct effect on inflation. They have, accordingly, pumped up the Consumer Price Index (CPI).
The ongoing cycle of tit-for-tat tariffs has created an environment where companies cannot predict what the future holds. Most are already hard at work reengineering their plans to deal with the new dangers of ever-changing tariffs. These new developments immediately affect cost of production and price implications. As businesses experience the consequences of these sudden and disruptive changes, consumers will have to pay the price in the form of increased prices.
Improving China-United States trade relations have strengthened currencies like the New Zealand Dollar (NZD). Foreign exchange Investors NZD/USD Exchange rate Investors tend to view the NZD as a proxy for Chinese economic performance. However, with tensions returning after a brief lull, market analysts are watching intensely to see how these developments will shape global currencies and investments.
Economic Outlook Amidst Political Uncertainty
That current climate is made all the more complex by the domestic factors operating within the United States itself. The federal government shutdown has begun its fourth week with no end apparently in the offing. Its deep political stalemate injects yet another layer of uncertainty to a sharply volatile economic landscape.
Market analysts predict the Federal Reserve’s last possible consecutive interest rate cut increases prospects of a weak U.S. Dollar. They expect this move will increase the currency’s meaningful impact. According to a recent Reuters poll, most are looking for at least a 25-basis points rate cut. This forecast mirrors what has been a dismal economic landscape. By decreasing interest rates, greater depreciation of the dollar would be injected into the equation, further shaping global trade relations.