The economic conflict between the United States and China, which began in early 2018, has found new momentum with the return of Donald Trump to the White House. President Trump initially set trade barriers against China, alleging unfair commercial practices and intellectual property theft by the Asian powerhouse. This trade war escalated until both nations signed the US-China Phase One trade deal in January 2020, which required China to implement structural reforms and changes to its economic and trade regime. However, the agreement's intent to restore stability and trust appears to be short-lived as tensions reignite.
Following President Joe Biden’s term, during which he maintained and even expanded tariffs on China, the trade war is slated to resume from where it was previously left off. The US Customs and Border Protection announced on Wednesday that additional US tariffs of 10% will apply to both Hong Kong and mainland China. These measures reflect a continuation of the tit-for-tat policies that have characterized this protracted economic standoff, exerting considerable influence on the global economic landscape.
President Trump's recent return has renewed tensions, particularly after his decision to delay 25% tariffs on Canada and Mexico for one month following discussions with their leaders on Monday. Meanwhile, the ongoing dispute with China has led to disruptions in global supply chains, contributing to reduced spending, particularly in terms of investment. The situation has also directly impacted the Consumer Price Index inflation, as costs have risen amidst these trade barriers.
The trade war has not only strained bilateral relations but has also weakened the US Dollar, while simultaneously boosting demand for traditional safe-haven assets such as gold. The currency market has felt these effects too, with the AUD/USD pair experiencing negative pressure due to the ongoing conflict. This dynamic illustrates the widespread ramifications of the trade conflict beyond just the two principal nations involved.
The Phase One trade deal, initially perceived as a step towards mending relations, aimed to enforce structural reforms within China's economic practices. While it brought a temporary respite, it seems that underlying issues remain unaddressed. The agreement's failure to deliver lasting peace between the two economic giants indicates deep-rooted complexities in their trade relations that require more comprehensive solutions.
As the trade war resumes under the renewed leadership of President Trump, global economic observers are closely monitoring its implications. The intricate network of international trade is highly susceptible to such high-stakes conflicts, and continued hostilities may further destabilize markets worldwide. Analysts suggest that stakeholders in global markets must prepare for potential fluctuations as this trade war takes its course.