The ongoing US-China trade war, which began in early 2018, is experiencing a resurgence of tensions following President Donald Trump’s recent pledge to impose significant tariffs on Chinese imports. The situation comes at a time when the global economic landscape continues to grapple with the repercussions of previous trade policies.
The trade conflict escalated when President Trump initiated tariffs on various Chinese goods, including automobiles and soybeans, aiming to address trade imbalances. In retaliation, China responded with higher tariffs on the same array of US products. As the tit-for-tat trade war escalated between the two countries, it caused chaos among global supply chains. It caused a sudden freeze in consumer spending and small business investment.
In January 2020, the two countries signed the Phase One trade agreement. The goal was to reestablish predictability and foster trust in the bilateral relationship between the United States and China. This pact demanded structural reforms and changes to China’s economic and trade regime. As tensions flare up once more, the chances for a durable, long-term resolution look more and more grim.
Consequences of the Trade War
The US-China trade war has had deep consequences on both countries and the world. The sudden onset of tariffs threw a wrench into global supply chains, making companies scramble to rethink where they locate production and how they move goods. In particular, many manufacturers have testified that the increased tariffs on imported inputs have raised their costs of production.
Consumer spending, with the drop most acutely felt in industries dependent upon imported goods, largely a direct result of these tariffs. Investors are understandably on the sidelines, given the fog of war as it relates to our trade relations. They are prudently seeking to assess the risks of a more volatile trade policy.
Additionally, the trade war has explicitly poured into inflationary numbers, particularly affecting the Consumer Price Index (CPI). As tariffs have raised costs for consumers, this has been seen in higher prices on everything from groceries to haircuts. Analysts continue to monitor these trends closely as they await economic indicators that may signal recovery or further decline.
The Path Ahead
These latest moves are further signs that the U.S. is going back to the scenario of more aggressive trade retaliation. In August, President Trump threatened to slap 60% tariffs on China if he were to return to the White House. This brazen announcement has reverberated around the global marketplace. This new pledge doesn’t just stoke fears of increased military confrontation, it renders any prior assurances more tenuous than ever.
President Joe Biden has kept all of these tariffs and gone so far as to add new tariffs on several other imports. This apparent continuity in approach is a positive sign that the Biden administration understands the complexities inherent in US-China relations. It also begs the question of what is the long-term plan for coping with these tensions.
Debates over export-import bank policies came to a standstill. A spokesperson for China’s Foreign Ministry made clear there have been no such talks, recent or otherwise. This lack of discussion creates more confusion and makes one wonder whether the lofty aims of diplomacy can truly trump trade disputes.
Impacts on Global Supply Chains
In a major development, the Port of Los Angeles has formally announced that … Scheduled arrivals during the week beginning May 4 will be one-third less than what arrived the same time last year. This steep drop in activity highlights the bigger story about the trade war’s effects on global supply chains. Importers from China are already facing new heights of logistical burdens today. Their operations are being made all the more difficult by these heightened tariffs and increased shipping costs.
As companies work through these challenges, a growing number are looking to shift their supply chains as a way of avoiding the risk tied up with US-China relations. That change could be the catalyst for fundamental changes in the global landscape for advanced manufacturing. In the face of persistent pressures, companies are looking for longer-term, more stable alternatives.