The scattered US tariffs that constitute the start of the US-China trade war, now officially launched in early 2018, have escalated again. When the US-China Phase One trade agreement was signed in January 2020, both countries expressed desires to create stability. They wanted to re-establish trust between each other. Donald Trump is indeed coming back to office, one way or the other, on January 20, 2025. He’s promised to raise huge tariffs on China, a pledge he’s repeating in his 2024 reelection campaign. This new round of hostilities is reverberating across worldwide supply chains and creating conditions for a growing global economic tempest.
The agreement reached between the U.S. and China in January 2020 required sweeping, structural reforms in China’s economic and trade practices. Yet, this landmark deal successfully calmed divisions at least temporarily. It wasn’t really the big fix of all that deeper stuff – like the IP theft and the other unfair commercial practices – that the Trump administration had called out. Consequently, the continuing economic impasse between the two is once again hurting both countries and the international marketplace.
Resumption of Trade Hostilities
The trade war refought dog-for-dog soon after Trump’s re-inauguration. Both countries have reimposed tariffs on each other’s products, raising costs for American consumers and American businesses. This cycle of escalation has done more than simply disrupt trade. It has caused wider economic repercussions around the globe.
The impacts of the trade war go further than just bilateral ties. Global supply chains have been rocked by one, two, three times the disruption as companies try to figure out the whipsawing discipline from changing love lifetimes and commerce barriers. Other manufacturers are taking this opportunity to re-assess the fragility of their supply chains, particularly due to fear of risk posed by tariffs and export controls. Consequently, investment spending has definitely cooled down, highlighting a more risk-averse stance from businesses in the face of increased uncertainty.
Though indirect, as it is not only due to tariff implementations, the trade conflict has had an immediate effect on CPI inflation rates in the US. Tariffs directly hurt consumers by raising prices as consumer goods become more expensive to import. This phenomenon contributes to the increased overall inflationary pressures in both economies. Thanks to the interdependence of the global economy, these developments are hardly contained to a vacuum. They shake up markets across the globe.
Tariff Strategies and Responses
With these massive new 60% tariffs Trump would be announcing an extreme new level of trade war hostilities. This ambitious plan, though welcome as a way to leverage economic pressure on China, risks galvanizing further retaliation measures. In recent months, China has retaliated through tariffs on a number of US products, notably automobiles and soybeans. This decision makes the already tumultuous bond between the two countries even more contentious.
Additionally, the US government is reportedly gearing up to ban software-powered exports to China. On July 3, China announced expanded export controls on rare earth minerals. These minerals are absolutely essential to the tech sector. These US export controls will cut in many directions, targeting anything and everything that relies on American software. This unilateral move will certainly increase the friction on an already volatile situation.
The long-term effects of such actions would be extensive. As many high-tech products utilize US software in their production processes, restrictions could hinder China’s technological advancement and exacerbate existing tensions. Businesses that depend on these overseas sales will face enormous difficulties. That would mean loss of jobs and economic recessions in the two countries.
Long-Term Economic Implications
Even without the unpredictable impact of the current US-China trade war, it’s difficult to see how either country can maintain their current long term economic trajectories. Inventory build-up is increasing, and consumer prices are rising due to tariffs. All of this puts on the table the very real prospect of a major economic downturn. Businesses will be reluctant to invest in an environment so capricious, affecting their long-term growth paths.
Additionally, the geopolitical US-China relationship continues to worsen international provider alliances and market tensions. Countries with otherwise robust economic relationships can start to see them become collateral damage. This confluence of circumstances has produced an intricate latticework of dependencies and vulnerabilities.
Both countries are engaged in a titanic economic struggle. How long these growing pains persist, and how we address them remains to be seen. With both sides firmly dug into their respective camps, it seems there’s no reasonable endpoint in sight.