The trade relationship between the United States and China has experienced significant disruption in the last few years. Now, with Donald Trump soon to take office again, the stakes are about to become even higher. The former president, who is set to return to the White House on January 20, 2025, has openly pledged to impose a staggering 60% tariff on Chinese imports during his 2024 election campaign. As the United States and China both have to deal with this tougher economic environment, the threat of a new outbreak of the trade war remains.
The US-China trade war initially erupted in early 2018 when then-President Trump implemented trade barriers against China, citing unfair commercial practices and intellectual property theft. After a pattern of escalations and retaliatory tariffs, the two countries struck a historic Phase One trade agreement. They achieved this significant goal as of January 2020. This agreement mandated structural reforms and changes to China’s economic and trade practices, aiming to restore stability and trust between the two economic giants.
The Phase One Trade Deal
The Phase One trade deal marked both a cyclical highpoint and a generational watershed in US-China relations. The agreement promised to tackle a number of long complaints about trade deficits and IP thefts. As part of the deal, China agreed to purchase an additional $200 billion in American products over the next two years. This commitment extends beyond just the transportation sector to agriculture, manufacturing, energy, and our services.
Even after reaching this agreement, the relationship between the two nations was fraught. President Biden has kept most of these discriminatory tariffs and indeed imposed even more tariffs. Yet this continuity indicates a larger, more cohesive strategy focused on countering China’s influence both abroad and at home, all while balancing complex domestic political pressures.
With Trump’s likely return to power, many analysts expect that these tensions will continue, or even increase, again soon. Consider, for example, how the first two years of the trade war have already altered global supply chains. In addition, it has reduced consumer purchasing power and raised inflation rates in both economies.
Retaliatory Measures and Negotiation Attempts
A second trade war could soon be brewing. Following suit, China is now bracing itself for tariff talks with the yet-to-be-sworn-in Trump administration. In recent statements, China’s Commerce Ministry indicated that senior US officials have expressed a willingness to discuss tariffs with Beijing.
“The US has recently sent messages to China through relevant parties, hoping to start talks with China,” – China’s Commerce Ministry
China has indicated a readiness to cooperate and talk. This all unfolds as the country seeks action of its own, including imposing tariffs on US products such as automobiles and soybeans. China’s strategy appears to be to use its economic tools to counter US tariffs. This smarter approach better safeguards its own interests.
China’s leaders at the highest levels have made the call for Washington to show “sincerity” in these preliminary negotiations. They acknowledge that genuine US goodwill can create space for real progress to take place. Such conversations may be the best way to heal our current, festering, trade disputes.
“China is currently evaluating this,” – China’s Commerce Ministry
This assessment highlights the political dynamic of negotiation vs. retaliation that is now the hallmark of US-China relations.
Implications for Global Economy
The consequences of the US-China trade war impact much more than just the bilateral relationship between the United States and China. The trade conflict has already made an indelible mark on global economic stability, for better or worse. From pharmaceuticals to technology, disruptions in supply chains have created a ripple effect across various sectors, leading to delays and rising costs for businesses around the globe.
Further complicating the landscape, as tariffs and their collateral damage have mutated, so too have consumer prices. High imported intermediary production costs have contributed to the supply chain inflationary shock across most economies. Since then, the Consumer Price Index has captured these trends, leaving millions of households scrambling to keep up with soaring prices.
Japan’s Finance Minister Katsunobu Kato highlighted this intricate web of economic relations by mentioning Japan’s holdings of US debt as a potential bargaining chip in negotiations with the Trump administration. Such dynamics are examples of how ultimately connected our global economies are and the ways in which changes to US-China relations can ripple throughout the globe.