Donald Trump back as the 47 th President of the United States on January 20, 2025. This latest development might lead to a renewed escalation in the US-China trade war that began in 2018. The failed prior administration’s trade war with China has wreaked havoc on American supply chains. This judgment was based on claims of improper business practices and IP theft. Indeed, as Trump prepares to assume office again, he has threatened tariffs as high as 60% on Chinese imports, leaving us all wondering how that will play out on the global stage.
The US-China trade war has been the catalyst for a new wave of tit-for-tat protections. These unprecedented actions have placed the entire global economy at risk. Ever since its emergence, it has ruined supply chains and added to inflationary pressures. Taiwan’s currency recently rallied more than 5% against this backdrop. This sharp increase underscores the unpredictable terrain that lies ahead in the economy.
Background of the US-China Trade War
The US-China trade war that began in earnest in early 2018. During his administration, Trump launched a wide-ranging and escalating tariff assault to counteract what the administration considered China’s unfair trade practices. The justification for these actions was to stop the theft of American intellectual property and to reduce a large and growing trade deficit. In response to this escalation, both countries fired back with an array of reciprocal trade policies. This ping-ponging caused greater economic distress and confusion to businesses and workers.
In January 2020, the two countries came to an agreement called the US-China Phase One trade deal. This joint arrangement was meant to bring about greater stability and predictability into the relationship between these two economic giants. Unlike TPP, it only required structural reforms and systemic changes to China’s economic and trade regime. As many analysts contend, it didn’t do enough to resolve the deeper structural problems that were stoking the trade war.
However good the terms of the deal, the US-China trade war instead forged a new geopolitics that reoriented economic relations around the world. Both countries implemented these tariffs, which began the barrage of protectionist measures. This decision led to significant shortages throughout global supply chains. These disruptions set off a domino effect that reduced consumption and business investment worldwide. This decrease played a significant role in pushing down overall inflation, as seen most dramatically in the Consumer Price Index.
Impact on Global Economy
The impacts of the US-China trade war have echoed even further than just bilateral ties. Countries everywhere have witnessed the damaging impact, as companies were forced to scramble in order to keep up with rapidly changing tariffs and trade policy. As the pandemic twisted and snarled supply chains in unexpected ways, many companies started to rethink how they wanted to operate.
This economic conflict has further intensified inflationary pressures, as skyrocketing costs continue to hit consumers hard. First, tariffs have pushed inflation by raising the price of imported goods. When they do get hit with these unexpected charges, companies tend to react by passing these costs on to consumers. Consequently, inflation rates experienced significant jumps during times of escalated trade tensions.
Taiwan’s currency, the TWD, recently climbed more than 5% in response to these simmering tensions. This increase is responsive to the state of the market as we know it today. More importantly, it reflects a deeper wish for regional stability, particularly in light of the specter of renewed US-China conflict. Economists will tell you that this type of volatility in a currency’s value is indicative of broader instability related to uncertainty over international trade policy.
Future Outlook and Political Implications
With Donald Trump once again looking to take the presidency, all eyes are on what his administration will do to chart a new course in U.S.-China relations. During his campaign, Trump promised to raise significant tariffs. He argues that these new tariffs will save and create American jobs and support U.S. industries by shielding them from unfair foreign competition. Many experts caution that such aggressive measures could escalate existing tensions and lead to further economic ramifications.
Despite these negative effects, President Joe Biden’s administration has largely maintained the tariffs that Trump imposed. They have released new levies above those. Still, this continuity demonstrates a broad bipartisan consensus on the need to be wary of China, and such a consensus is hard to come by. Every administration plays up various strategic approaches.
Taiwan has entered the fray. On May 8, it launched its second wave of meetings with US congressional representatives on the importance of trade. The specifics from those talks are a closely guarded secret. Such discussions would be an encouraging sign of Taiwan’s attempts to increase its own economic resiliency, especially with increasing geopolitical pressures from China.