Donald Trump has returned to the White House, serving now as the 47th President of the United States. His return has drawn claims of new tensions between the US and China. That economic conflict, ratcheting up first in 2018 with the start of Trump’s trade war, is set to become even more pronounced under the Trump administration. Have we just ensured that our former president can return to office January 20, 2025? He’s signaled a dangerously reckless stance on trade with China, which has the potential to spark real global economic instability.
In 2018, Donald Trump raised trade barriers on China, claiming they were engaging in unfair commercial practices and IP theft. Those acts represented the start of a contentious bilateral trade war that would prove costly for both countries. It would create space for their repeal, as President Joe Biden has so far kept these tariffs in place. He enacted new levies, striking a bipartisan tone on economic relations with China. To help address some of the tensions that had escalated between the countries, the Phase One trade deal was signed in January 2020. It required major structural reforms and changes to China’s economic and trade regime.
The Trade Deal and Its Aftermath
The Phase One trade agreement was meant to at least begin the process of reestablishing some stability and trust in the relationship. In return for various commitments from China, the US promised to not move forward with additional tariff increases. China struck back with tariffs of their own on a wide range of US products, including cars and soybeans. The current trade war has brought extreme protectionism that upends global supply chains. Inflation, as a direct result of these same policies, is skyrocketing in the most commonly used measure, the Consumer Price Index.
The impacts of the China trade war have been severe. Decreased consumer spending and investment have sent shockwaves through the ripple effects across the entire global economy. In short, the imposition of tariffs threw all of these businesses into a state of chaos. Consequently, consumers paid more, and businesses dependent on global trade faced reduced profitability. Consequently, the economic environment is more volatile than ever.
Upcoming Negotiations with Xi Jinping
Looking forward, President Trump has President Xi Jinping of China coming for a long visit soon to South Korea. Trump was optimistic that “something will work out” on this key negotiation. But repeated experience has bred skepticism that these kinds of negotiations can produce the political will needed to resolve longstanding, contentious issues.
On the campaign trail for the 2024 election, Trump promised big. He pledged to slap 60% tariffs on China if he is re-elected. This pledge shines a light on his determination to go hardline against what he sees as unfair foreign trade practices. It was under Trump’s administration that we saw a revival of the trade war, leading to a ratchet of retaliatory policies. Such an escalation would increase already high tensions between the two countries and further roil global markets.
Implications for Global Markets
The prospect for a fresh US-China conflict has economists and policymakers from both countries worried. An escalation of the trade war might reignite significant turbulence in international financial markets. This chaos would affect not only bilateral trade, but international economic relations at large. Countries around the world may feel the impacts of rising tariffs and retaliatory measures as both nations engage in protectionist practices.
Moving forward, stakeholders across all sectors should keep a close eye on these new developments. The implications of Trump’s renewed presidency and his approach to China will likely shape economic policies and global markets for years to come.