The trade tensions between the United States and China have once again intensified following the return of Donald Trump to the presidency. This escalation comes as President Trump announced new tariffs on imports from China, Canada, and Mexico. The trade war, which initially began in early 2018, had previously de-escalated with the signing of the US-China Phase One trade deal in January 2020. However, recent developments suggest a revival of hostilities that could have significant global economic implications.
The trade war originally commenced when President Trump accused China of unfair commercial practices and intellectual property theft, leading to the implementation of trade barriers. This conflict saw various tariff impositions and retaliations until an agreement was reached in 2020. The US-China Phase One deal required China to make structural reforms and other changes to its economic and trade system. The objective was to restore stability and trust between the two nations. However, Trump’s return to power has reignited tensions, raising concerns about the future of this fragile truce.
After taking office, President Joe Biden maintained many of Trump's tariffs and even added additional levies. Despite hopes for a more diplomatic approach, the tariffs remained a point of contention. President Trump's recent announcement confirmed that 25% tariffs on Canada and Mexico would come into effect on March 4. Additionally, he introduced an extra 10% levy on Chinese imports, stacking on top of a previous 10% tariff imposed in February. This move has prompted China to consider retaliatory actions, escalating the risk of a tit-for-tat trade war between the two economic giants.
"If the US insists on having its own way, China will counter with all necessary measures to defend its legitimate rights and interests," – A spokesperson for the Chinese Ministry of Commerce
The potential for a renewed trade war has rattled markets worldwide. Investors are closely watching developments, with many seeking safe havens for their investments. Notably, gold, which is traditionally seen as a refuge during times of economic uncertainty, has not been able to maintain its allure under the current tariff conditions. Despite a drop in US yields, gold is no longer considered a safe haven for now. The precious metal is currently trading at $2,860, reflecting market apprehension as investors weigh the impact of impending tariffs.
Economists are also keeping an eye on upcoming economic data that could further influence market dynamics. The US Bureau of Economic Analysis is set to release the Personal Consumption Expenditures (PCE) Price Index data for January on Friday at 13:30 GMT. This index excludes volatile food and energy prices and is projected to rise by 0.3% on a monthly basis. Any significant deviations from expectations could trigger additional market volatility.
Meanwhile, the CME Fedwatch Tool indicates growing speculation about potential Federal Reserve actions in response to these economic pressures. The tool shows a 71.8% probability of a rate cut in June, compared to a 28.1% chance of maintaining current rates. This suggests that market participants anticipate monetary policy adjustments to mitigate the economic impact of heightened trade tensions.
The return of Donald Trump to the White House as the 47th US President has undoubtedly sparked a fresh wave of uncertainty in international trade relations. His administration's commitment to enforcing tariffs on Mexico and Canada, coupled with new levies on Chinese imports, has raised alarm bells among global stakeholders. These developments have reignited fears of prolonged economic disruptions and have left many questioning the long-term impact on global supply chains.