Donald Trump has taken office again, this time as the 47th President of the United States. His return to power restarts a cycle of antagonism towards Beijing that has been brewing since his first term. His administration’s approach to trade is poised to resume the contentious policies that characterized the US-China trade war, which began in 2018. This new eruption of war is likely to have serious ramifications for the world economy. Each country has accused the other of repeated violations, and both nations are preparing for widespread retaliatory tariffs and trade restrictions.
Beginning in 2018, Trump launched a trade war against China based on claims of unfair commercial practices and IP theft. These protectionist measures ignited a retaliatory trade war. As a counter, China placed tariffs on key American exports such as automobiles and soybeans. When tensions flared, the ensuing back-and-forth created a tangled supply chain of retaliatory measures. This tumultuous period resulted in the first Phase One US-China trade deal signed in January 2020. This deal forced China’s hand on a series of structural reforms that were designed to bear the weight of correcting many of the United States’ long-standing complaints.
The Legacy of the Trade War
The first round of President Trump’s US-China trade war was a watershed event in global trade politics. Trump’s original goal with tariffs was to shield American industries and jobs from unfair foreign competition. This act led to a series of retaliatory tariff strikes from China. Each country retaliated against the other by placing tariffs on each other’s goods. This technical action upended global supply chains and directly pushed prices higher for consumers and employers. The trade conflict spurred a wave of cutbacks, both in spending and private sector investment. This caused the rates of inflation to change directions, as seen in the Consumer Price Index.
And despite the Phase One agreement’s attempts at addressing these tensions, the real issues were still left unclear. While the agreement made serious commitments – in principle – for China to adopt and enforce structural reforms, adherence to these terms has been imbalanced. The Biden administration maintained many of Trump’s tariffs and even introduced additional levies, emphasizing a continuation of protectionist policies that reflect deep-seated concerns about China’s trade practices.
With the return of Donald Trump to power, fears of an all-out trade war have resurfaced. He has vowed to impose even steeper tariffs—up to 60%—on Chinese goods if he regains full control over trade policy. This unilateral, aggressive move puts into sharp relief how both countries will maintain their complicated, co-dependent economic relationship in the future.
Changes in China’s Trade Policies
Against the bellicose backdrop of US-China relations, notably driven by the Trump administration’s trade war, China has changed its own trade policy. Recently, Chinese authorities announced the removal of 17 local measures impacting various sectors including traffic logistics and vehicle leasing services. This extends to eight other national measures across three sectors—telecommunications, pharmaceuticals, and internet information services—that have been partially liberalized.
These changes represent China’s ongoing efforts to manage its foreign investment policy and gradually open its markets to foreign entities. By liberalizing specific sectors, Chinese officials aim to attract foreign investment while addressing criticisms regarding market access from trading partners like the United States. These reforms have yet to prove sufficient to satisfy US demands. They may be substantially inadequate to counter the very real danger of restored tariffs should Trump return to power.
The ramifications of these policy changes reach far past the bilateral relationship, impacting contentious global supply chains and economic competition. As countries around the world navigate these changes, businesses must adapt to an evolving landscape shaped by shifting trade barriers and regulatory environments.
Economic Consequences and Global Impact
The greater risk is that the US-China trade more resumes and further escalation contributes to a global recession. As both countries implement tit-for-tat measures, industries that depend on cross-border trade will be left to grapple with extreme uncertainty and volatility. Supply chains that have been previously stressed to their limits will be doubly so. This can potentially increase prices for your consumers as well, impacting every enterprise as well.
Economic analysts have already warned about the effects that renewed tensions would have on investment flows and consumer behavior. Tariffs are inflationary by their very nature. Tariffs are a tax, and all taxes are inflationary. Inflationary pressures can erode consumers’ purchasing power and slow down our economy. As we have seen recently with the AUD/USD pair—currently up 0.06% on the day—this translates through to global markets’ reactions to geopolitical uncertainties.