The US-China trade war started in 2018 when then President Donald Trump first enacted it. Now, though, that’s been resurrected after Trump was re-instated to office on January 20, 2025. The recent conflict started when President Trump first multiplied trade barriers to punish China for unfair commercial practices and IP theft. Now, with Trump promising to slap 60% tariffs on Chinese imports, the specter of economic disaster has returned. This changed during President Joe Biden’s administration, where tariffs were kept in place and increased. This action deepened tensions between the two countries.
The trade war is on, and this time it’s brutal. Tit-for-tat trade policies are shattering global supply chains, replacing badly needed investment spending with short-term spending booms, and exploding inflation as measured by the Consumer Price Index. In light of all these changes, analysts and reporters have been watching the potential impact on international trade and economic prosperity.
Historical Context of the Trade War
This development comes amidst the backdrop of an escalated trade war between the US and China that began in early 2018. To respond to what President Trump alleged were China’s discriminatory trade practices, he introduced a series of tariffs. These tariffs were imposed, ostensibly, in response to Chinese state-sponsored intellectual property theft and a litany of other commercial complaints.
In retaliation, as the conflict intensified, tit for tat, both countries sunk deeper into a rabbit hole of protectionist trade policies. In January 2020, they agreed on and signed a Phase One trade deal to lower tensions. This agreement moved China to make some very important and necessary structural reforms. It demanded commitments on its trade practices to help restore stability and confidence in the space.
Yet hopes for a permanent solution were short-lived. Trump would subsequently claim that China had violated the deal by not rolling back their tariffs as agreed upon. Additionally, claims began to surface that China was hoarding products vital to the industrial supply chain, furthering the damage to what was already a frail relationship.
Economic Impacts and Responses
As the new study outlines, the trade war has had major spillover effects on the global economy. This state of emergency has thrown supply chains into disarray across the world. It has led to an unprecedented decline in consumer spending, particularly in the investment sectors. These determinants of demand have unequivocally fueled increasing inflationary pressures as indicated by the Consumer Price Index.
Analysts remain concerned that the new retaliatory tit-for-tat cycle between both countries could heighten tensions further, risking a vicious cycle. Prolonged conflicts such as these could deepen the global economic malaise. Investors are rushing for the exits as worry spreads about the US-China trade war. Consequently, this increase in evidence has fueled demand for the safe-haven Japanese yen (JPY).
US Treasury Secretary Scott Bessent recently noted that discussions between Trump and Chinese President Xi Jinping are likely on the horizon. The focus of these talks will include a dispute over critical minerals, an essential component of various industries and technologies.
“US President Donald Trump and Chinese President Xi Jinping are likely to speak soon to iron out trade issues including a dispute over critical minerals” – US Treasury Secretary Scott Bessent
Future Outlook
With Trump back in office, many analysts expect the trade war to return with the same ferocity as before. On the campaign trail for his 2024 election, he had assumed a hardline approach toward China. He doubled down on these threats this week, pledging huge tariffs if re-elected. This new, take-no-prisoners approach is likely to re-heat old fights and fan the flames of new ones.
The implications of this new war reach far beyond their bilateral relations, disrupting global trade patterns. Protectionism is continuing to grow. This trend could set off a cycle of counter-barriers, increasing costs of imports and harming American consumers’ cost of living.
As both countries continue to travel along this difficult path, experts stress the need for ongoing dialogue between the two nations. Trump and Xi’s discussions will greatly influence the course of US-China trade relations going forward. The outcome of their ongoing negotiations has the potential to change that trajectory in profound ways.