The economic war between the United States and China began in earnest in early 2018. Recently, it has spiraled out of control, affecting the people of both countries and the world’s economy tremendously. Much of this tension arises from trade barriers that former President Donald Trump slapped on in a rage. He rightly called out China’s mercantilist policies and IP theft. As both countries navigate this complex relationship, the stakes continue to rise amid ongoing discussions and disputes over tariffs and trade policies.
When Donald Trump started a trade war with China in 2018. This decision reversed decades of economic policy by distancing the two countries. He imposed hundreds of billions in new trade barriers to combat what he regarded as predatory practices by China. This meant doing a better job of safeguarding American PIP from theft. In response, China quickly retaliated, hitting a wide-ranging list of U.S. products with tariffs of their own. This effort took aim at cars and major agricultural exports, including soybeans. This tit-for-tat imposition of tariffs increased the volatility of U.S.-China relations while creating fear and anxiety in global markets.
That state of affairs came to a head when the US and China ratified the US-China Phase One trade agreement in January 2020. This agreement sought to restore some stability and trust between the two countries, requiring China to implement structural reforms and changes to its economic and trade regime. Though the deal was a relief, allowing the momentary easing of tensions, it left the problematic issues unaddressed.
Ongoing Negotiations and Disputes
In recent months, pharmaceutical trade relations have roared back into the spotlight. Donald Trump asserts that their counterpart, Chinese President Xi Jinping, has pursued trade talks “on bended knee.” Beijing has refuted these assertions, messaging that such communications have not occurred. This divergence in narratives leaves one wondering just how serious either country’s going to be in future negotiations.
U.S. Treasury Secretary Bessent underlined the importance of China leading the way in any trade dialogue. China currently sells to the U.S. over five times the amount it buys from America. This leads to huge economic inequities that add a lot of toxicity weighing into the conversation. This imbalance puts substantial pressure on the current U.S. administration to redress these inequities, while juggling the intricacies and constant change of international trade.
So when President Joe Biden came into office, rather than rolling back the tariffs that the previous administration had put in place, he maintained most of them. He too proposed new tariffs on certain Chinese imports. This decision signals our determination to address the problems that were exposed during the trade war. Our bipartisan infatuation with protecting U.S. interests at all costs must be effectually guarded. Indeed, Trump has promised to raise tariffs up to 60% on Chinese imports if he gets back in the White House. This action is a clear portent of escalation of belligerence between the two countries.
Impacts on Global Economy
The ongoing strain between the U.S. and China over trade and technology have global implications for the economy and labor markets. The ongoing U.S.-China trade war has rattled supply chains at home and across the world, causing delays and hurting the bottom lines of American businesses and consumers. The rules companies are operating under have changed dramatically. Most are even retreating in some sense, reevaluating their sourcing strategies and seeking to diversify their supply chains away from China.
Further, the war has led to cuts in general spending, especially capital investment. This decrease has a direct effect on inflation measures. One major indicator of inflation is the Consumer Price Index (CPI), a measure of the change in prices for a range of consumer goods and services. With persistent inflation, consumers are likely to see continued rising prices, which will hurt their purchasing power and appetite for spending, hurting economic sentiment.
The ongoing uncertainty and unpredictability in U.S.-China relations are still causing a spillover effect throughout international markets. Investors are becoming increasingly jittery over potential shifts in trade policy. This newfound suspicion is leading to turmoil on stock exchanges and changes in currency values. Globalization of economies has established the interdependence of all nations, where actions taken in one country can have far-reaching and dangerous effects.