The ongoing economic cold war between the United States and China is escalating. This US-China trade war is likely to get worse in the next few months. The US-China trade war that started in early 2018 under the Trump administration has created a wave of uncertainty. Since then, both countries have raised tariffs several times and employed retaliatory actions. Donald Trump returns to the White House as the 47th President. He has promised to slap an unprecedented 60% tariff on Chinese imports, raising the specter of an all-out trade war.
The trade war began when President Trump accused China of unfair commercial practices and intellectual property theft, leading to the implementation of trade barriers that targeted various sectors. In retaliation, China quickly slapped tariffs of their own on a variety of US products—such as autos and soybeans. This tit-for-tat strategy was the beginning of a new era of retaliatory trade relations between the two countries.
The Phase One Trade Deal
To reduce the gnashing of teeth across the Pacific, in January 2020 the US and China inked the Phase One trade deal. This agreement was supposed to compel China to make concrete structural reforms and other changes to promote an open and fair economic, market-based and trade regime. The agreement prioritized normalizing relations and rebuilding each country’s credibility. It addressed the central problems that ignited the trade war.
Despite these ambitious and expansive economic development efforts, the root conflicts have not been completely addressed. That is why the Phase One deal seemed like a godsend. It largely stopped short of addressing the bigger problems with China’s behaviour on trade. Accordingly, many pundits argue that the underlying problems that sparked the trade war still have not been sufficiently remedied.
“Every day we are in conversation with China, along with those other 99, 100 countries that have come to the table.” – Brooke Rollins
Consequences of the Trade War
The impacts of the US-China trade war have echoed past bilateral relations, reshaping the global economic landscape. Disruptions in global supply chains are now the order of the day, causing decreased spending and investment from households to industry. Unsurprisingly, international companies are facing increasing costs and unpredictability. As a result, many are now more eager than ever to diversify their supply chains away from China.
Despite all of these clear and widespread impacts, under President Biden’s administration, Trump’s tariffs have stayed mostly in place with some added levies. This continuity has made it easy for most people to believe that no long-term resolution is possible. These recent escalations in conflict have raised concerns as to how both countries will handle future trade negotiations.
Future Prospects
With Donald Trump’s recent third return to power, experts predict a possible increase in trade tensions. His commitment to pursue 60% tariffs on Chinese goods is the kind of radical protectionist U-turn likely to inflame current and future trade frictions. Many analysts predict a reversion to the Trump-esque aggressive policies characteristic of the early years of the trade war. This change would usher in a new era characterized by tit-for-tat revenge.
China’s recent National People’s Congress press conference underscored the country’s focus on domestic strategies to stabilize and grow employment—and thus stable, secure growth—as tensions continue to flare. Both countries are preparing for a major escalation of their trade war. At the same time, the world economy as a whole treads lightly, looking for clues regarding shifts in leadership from these two economic behemoths.