The global economic landscape is on the cusp of profound changes. The United States is continuing down the path of imposing tariffs on Liberation Day. This comes on the heels of a 90-day suspension period which has recently expired. Donald Trump will soon be back in the White House. In turn, hostilities are escalating between the U.S. and its trade partners on the dispute of tariffs. Leaders are preparing for their annual G7 summit to be held in nearby Kananaskis, Alberta, Canada. Tariffs will again be front and center in their discussions, particularly with China’s latest retaliatory measures introduced this week.
The ongoing trade war between the U.S. and China, which has significantly shaped both countries’ economic policies, is expected to reignite. In retaliation to U.S. tariffs, China announced a 10% tax on imports from the United States. This decision will surely raise tensions between the two countries even more. The implications of these moves go well beyond bilateral relations, setting a damaging precedent for the trade landscape overall.
The Tariff Landscape Post-Liberation Day
We all know that the 90-day suspension period has ended. Now, the adoption of tariffs associated with “Liberation Day” is becoming pressing and unavoidable. Together, these tariffs mark a fundamental shift in U.S. trade policy. They signal a return to adversarial economic relations not just with China, but across the globe.
Whatever you may think about the politics, Donald Trump is back—dangerously. His return has revived discussions not only around his presidency but the trade barriers he created as president. It’s no leap to many experts’ expectation that his administration will take a much more aggressive approach to tariffs, especially directed at China. Trump has made similar promises to slap on exorbitant tariffs before, including a plan for an overall 60% tariff on Chinese imports as part of his 2024 election campaign.
This aggressive approach mirrors earlier actions taken in 2018 when Trump set trade barriers on China, citing unfair commercial practices and intellectual property theft as justifications. The long shadow of these policies still impacts U.S.-China relations today and feeds the broader, and ever-growing, fractious trade landscape.
Impacts on Global Trade Dynamics
Tempers are running high, passions are flowing. Rest assured, the incoming G7 meeting in Kananaskis is going to be a key stage for the fate of these tariffs and their global impact. Leaders from the world’s largest economies will convene to address pressing economic issues. They’ve been looking particularly at the effects of the U.S.-China trade war on international markets and supply chains.
The European Union faces its own trade challenges as the deadline approaches for negotiating a deal that could prevent a 50% tariff duty on all imports from the EU to the United States. The EU’s recent 90-day suspension of retaliatory tariffs is expiring soon. This deadline is pushing member states to wrangle into an agreement that best serves their economic interests.
Additionally, U.S. trade policy has come more into focus after a fruitful two-day meeting of U.S. and Chinese officials this week in London. The two sides agreed on a framework to extend their trade truce. The newly proposed tariffs would just as easily upend this fragile accord. The proposal is now being debated. It would include a 10% “reciprocal” tax, a 20% tax on fentanyl trafficking, and a 25% tariff on current non-tariff trade barriers.
China’s Retaliatory Measures
China is beginning to hit back against U.S. tariffs. In fact, they have already retaliated against a number of American exports including cars and soy beans. These steps mark China’s approach to shore up its economy in parallel to counteracting U.S. actions seen as hostile.
In mid-January 2020, the U.S. and China formalized the Phase One trade agreement. This pact forced China to make significant structural changes and adjustments to its economic and trading behavior. The existential threat posed by a possible second Trump term remains. His determination to raise tariffs threatens the long-term sustainability of this agreement.
China’s announcement today that it will begin imposing a 10% tax on U.S. imports highlights the fact that China is more than willing to play the tit-for-tat game. As both countries prepare for further confrontation, the global economic landscape hangs in balance, with many nations closely monitoring developments.