The trade war between the United States and China, which started in the early months of 2018, is seconds away from returning. The reason for the current showdown goes back to former President Donald Trump’s trade war with China. His crusades were inspired by these manifestations of unfair commercial practices and intellectual property theft. Nonetheless, President Joe Biden is doing exactly that—not just maintaining these tariffs, but instituting new ones. The war, already fueling inflationary pressures and threatening food instability, is now making the world even more economically dangerous.
The extreme protectionism of the trade war, a shoot-the-hostage approach to economic warfare, has left global supply chains reeling. Even as both countries impose tit-for-tat policies, the ramifications are most profoundly felt outside of their borders. Many experts are concerned that the comedy’s new economic conflict could chill spending and investment globally. This change may cut directly into inflation rates.
Background of the Trade Conflict
The first shots of the US-China trade conflict were fired in early 2018. That’s when the United States began its full-scale series of economic retaliation against China. To respond to China’s unfair trade practices, the US government – under President Trump – imposed tariffs on a wide range of Chinese products. They complained that China was dumping exports on the US market and stealing cyberspying on American intellectual property. These tariffs were meant to shield American industries and spur on homegrown manufacturing.
In retaliation to the tariffs, China hit back. In retaliation, they launched their own tariffs on many US goods—including cars and soybeans. The tit-for-tat exchange only served to further increase tensions between the two countries. This tension boiled over into a full-blown trade war, with massive disruptions to global supply chains and continued effects on economies worldwide.
It took until January of 2020, but the tensions did indeed give way. Both countries rejoiced at a major breakthrough when they signed the US-China Phase One trade agreement. This deal should have forced China to make structural reforms and major changes to its economic and trade regime. The stated overarching objective was to return to a degree of stability and mutual trust in the U.S.-China relationship.
Current Developments and Future Implications
The Phase One trade deal was a good step in promoting that type of discussion, collaboration and trust. Despite this, President Biden has decided to keep most of the existing tariffs in place and add new tariffs. Predictably, this decision has come under heavy fire from economic analysts. They assert that an open and transparent dialogue is key to addressing tariff disputes and restoring strong trade relations. They argue that working together would produce better results for the two countries’ interests.
As tensions mount, former President Trump is stirring the waters with his swaggering, hair-raisingly-crazy-campaign-promise to. He pledges to slap 60% tariffs on China if he is re-elected president in 2024. His own possible return to the White House on January 20, 2025 could reintroduce much more aggressive trade policies against China. This would more or less restart the trade war exactly where it left off. Such moves could seriously undermine attempts to win a sustainable solution, let alone a resolution.
Even the prospect of this trade war continuing has economists sounding alarm bells for fear it will further roil global markets. Yet, the continued escalation of war in Ukraine has obliterated supply chains. That has directly instigated increasing inflation rates. Across the board, you can observe this in the Consumer Price Index (CPI).
Economic Ramifications of the Trade War
The ramifications of a new trade war go much deeper than the US and China. As both countries gear up for battle with protectionism protections, the world’s supply chains—and the consumers who rely on them—are suffering greatly. All businesses, especially those that are international trade dependent, have to contend with added costs and unpredictability—causing cuts to investments and spending.
Additionally, economists from across the political spectrum are beginning to warn that these protectionist policies will ultimately harm consumers by raising prices. As Congress considers the many challenges currently facing American businesses, increasing tariffs on imported goods should not be one of them. These increased costs are then transferred to consumers. Unfortunately, due to the length of the trade war, the trade war has nonetheless resulted in higher inflation which has diminished people’s buying power.