Under trade President Donald Trump, these tensions have boiled over. He declared that the United States will increase tariffs on steel and aluminum imports from 25% to 50%, effective Wednesday. Beijing responded with appropriate fury to this provocation. In retaliation, they argue that the US has “egregiously breached” the trade truce reached in May. As part of the agreement, the US reduced tariffs on products coming from China from 145% down to 30%. As a result, in kind, China reduced the level of its own retaliatory tariffs from 125% down to 10%.
The bilateral trade deal, finalized in October at an informal meeting in Geneva, was designed to reduce decades-old trade irritants between the two countries. It is last month’s US actions that have sent shockwaves across China’s political elite. They range from stopping the sales of computer chip design software to Chinese companies to explicitly warning against the use of chips manufactured by Huawei.
China’s Ministry of Commerce stated that Washington has “seriously undermined” the agreement, emphasizing that the US actions constitute a breach of trust. In an equally severe development, the ministry later stated that it would be taking robust action to protect its businesses’ interests.
The US has raised tariffs on various imports from China and has put an end to visas granted to Chinese students. Such efforts are exacerbating the chill between the two countries. Trade Representative Jamieson Greer emphasized that China has not been living up to its promise. The country has failed to lift the non-tariff barriers as pledged in the agreement.
President Trump justified the tariff increase as a means to bolster the local steel industry and reduce reliance on Chinese imports. He primarily repeated the US position on the issue, accusing China of having “totally violated its agreement with us.”
“Totally violated its agreement with us.” – Donald Trump
Tension notwithstanding, there remains some grounds for optimism as the two sides continue to engage in dialogue. Kevin Hassett, an economic advisor, remarked that “both sides have expressed a willingness to talk.” In doing so, he issued a clarion call. We need to have a plan if things go wrong,” he added.
Recent actions by the US have ratcheted up those tensions. China’s response underscores how fragile trade relations have become between the two largest economies on the planet. As both nations learn and adapt in this complicated new landscape, the future impacts on global markets and industries are still unclear.