Since early 2018, the tit-for-tat economic war between the United States and China has escalated. In recent weeks, this tension has driven a new wave of optimism. Both countries are preparing for a historic meeting between US President Donald Trump and Chinese President Xi Jinping. As trade agreements and tariffs continue to shape the global economic landscape, T4A are working to get them ready for this important conversation. The underpinning of that approach has been laid during the run-up to this important meeting, which could herald breakthroughs in a decades-long trade dispute.
Tension has heightened in the diplomatic tussle between the two nations. Trump’s trade war with China, largely driven by concerns over unfair commercial practices and IP theft, created new barriers with China. As the US and China continue efforts to stop the situation from worsening despite the backdrop of rising tensions. Specifically, they anticipate reaching agreement on a “deferral of some kind” on rare earth export controls. This would be an important move in the right direction towards reducing tensions further and creating a more productive, less antagonistic trading environment.
Background of the Trade Conflict
In 2018, President Trump also initiated a new round of tariffs to retaliate against countries engaging in what he termed unfair trade practices. These measures were directed towards China’s practices on trade and their hostile disposition to intellectual property rights. The affair soon swallowed both countries whole, developing into a complete trade war, punctuated by hundreds of billions of dollars in retaliatory tariffs from each country.
In January 2020, the US and China officially signed the Phase One trade deal. This treaty was intended to bring peace and confidence back between the two countries. This arrangement focused on requiring China to adopt structural reforms and other meaningful changes to its economic and trade regime. Even with that apparent progress, the relationship was on shaky ground even during President Joe Biden’s first term. He decided against rolling back existing tariffs and, in fact, increased tariffs on a number of items.
The US-China trade war has had widespread and intensive effects on the world’s economic order. Secondly, it caused global supply chain shocks which contribute to a decline in expenditure especially for sectors of investments. The effects of this trade war have further added to inflationary pressures, directly impacting the Consumer Price Index.
Current Developments and Future Prospects
As the August 18–19 Trump-Xi meeting draws closer, speculation and discussion have reached a fever pitch. So, there’s a mood of hope that a deal could soon be within reach. Recent meetings, such as the one involving US Treasury Secretary Scott Bessent and top Chinese officials late last week, have underscored the urgency of addressing outstanding issues between the two nations. Chief among those reasons for either side to negotiate would be the lowering of a new wave of American tariffs on Chinese imports.
China might not be too enthusiastic to strike a trade settlement. They line up because they don’t want a 100% tariff on their exports to the United States. Such an agreement would not only benefit Chinese manufacturers but American consumers, who have faced rising prices as a result of previous tariffs. The possibility for mutually beneficial concessions—to industry and the Biden administration—might just open the door to a cleaner and friendlier partnership in the future.
The next meeting will be critical in determining the US-China relationship going forward. With both leaders facing significant pressure from their own constituencies, the stakes could not be higher. Trump’s promise to impose 60% tariffs on China during his re-election campaign adds another layer of complexity to the negotiations. The result of this informal meeting would set the tone for several years of international trade negotiating policies.
Implications for Global Markets
A successful trade deal would be crucial for the long-term trajectory of US-China relations. Much more than that, it will send tarry ripples through global markets. The investor and business communities are eagerly monitoring these developments. They are assessing how these changes might affect supply chains, market access, and pricing strategies. Hopes are that a positive resolution to this ongoing conflict can reassure the global markets and re-energize economic recovery.
Moreover, easing tensions between the two largest economies in the world could enhance cooperation on broader issues such as climate change and public health. Finding common ground together can lead to shared projects. These efforts address urgent issues faced by both countries and the international community.