The economic war between the United States and China resumed this time after Donald Trump came back into the presidency. This latest fight does indeed date back to early 2018. Trump’s administration had largely painted trade barriers against China as a way to protect American companies from unfair practices, such as stealing of intellectual property. With Trump running hard for a return to the presidency, he’s promised to slap aggressive tariffs on Chinese imports, igniting fears of a new global trade war.
It’s not just governmental instability (which of course continues to escalate in the US). Since October 1, Congress has been unable to provide that funding, with deep ramifications for our international trade and diplomatic relations. Even with these challenges, President Joe Biden has kept these tariffs against China, adding even more tension to the economic climate. Despite this apparent positive development, recent escalations show that U.S.-Chinese relations continues to be on edge.
Background of the Conflict
The US-China trade war began in early 2018 when the administration of then-President Trump first levied tariffs on Chinese exports. He justified these actions by claiming that China was engaging in predatory commercial behavior. He charged that China was engaged in massive intellectual property theft of American firms. In response, China announced their own retaliatory tariffs on dozens of US goods—arguably most notably on American-made automobiles and soybeans.
As the situation became more intense, Trump increased his fiery rhetoric. He threatened new punishment of an incredible 100% tariff on other Chinese imports. This time created a long lasting and increasingly visible rift between the two world economic titans. Beijing’s response included expanding its control over rare earth minerals, further inciting Trump’s anger.
Then the situation turned dire when China demanded that foreign companies have their business approved by the government. This proposed rule extends to any products that include rare earth elements. The regulation itself provoked immediate tit-for-tat moves from the US. The Chinese government retaliated by levying additional port charges on American ships.
“There’s no evidence in the data that tariffs are raising inflation.” – Stephen Miran
The Phase One Trade Deal
In January 2020, the two countries put pen to paper on the US-China Phase One trade agreement, an attempt to halt racheting tensions. This deal should have pushed China to undertake structural reforms and bring its economic and trade policies into conformity. The multibillion-dollar deal was to put religious and regional tensions between the two countries to rest, bringing years of rivalries and wars to a close.
Although there was initial optimism that this deal would lead to a new spirit of collaboration, lingering grievances and tensions between the parties persisted. The agreement didn’t even attempt to address a number of key areas. Consequently, both sides were stuck without a resolution where grievances continued to linger just below the surface.
Now that Trump has returned to power, they’ve turned up the heat. Everyone assumes that the trade war will resume exactly where it left off. In the run-up to his 2024 election campaign, Trump promised big. He promised to raise tariffs on Chinese imports up to 60% upon his re-election. This promise indicates a return to the more confrontational trade policies of yesteryear, assuming he makes it through the electoral gauntlet.
Current Tensions and Future Implications
Currently, the US federal government is unable to borrow any new money as Congress remains gridlocked in a political stalemate. This deadlock injects even greater uncertainty into the insidiousness of international trade relations. According to our reading of the administration’s overall strategy, President Biden has firmly aligned himself with keeping the tariffs in place. He has raised further new levies on Chinese products. This decision demonstrates a key tactical move to continue applying pressure on China while walking a very thin line of resistance against domestic political headwinds.
The recent developments have led to the most significant escalation yet in US–China tensions. Fears that the trade war is escalating further have subsided a bit this week. Both countries continue to disagree on major economic policy areas.
Now with Trump’s possible return to power, there’s a lot of fear in the air. Stakeholders in both countries are watching the developing tensions very carefully. China still has lots of potential for escalation. This would be particularly the case if the US continued with its unilateralist trade policy agenda.