An economic conflict between the United States and China has persisted since early 2018, marking a significant chapter in global trade dynamics. Initiated by President Donald Trump, the conflict emerged from allegations against China regarding unfair commercial practices and intellectual property theft. Trump's administration responded with trade barriers, igniting what is now known as the US-China trade war. The dispute, characterized by extreme protectionism, escalated until a temporary resolution was reached with the US-China Phase One trade deal in January 2020. This agreement sought to implement structural reforms and changes to China's economic and trade regime, aiming to restore stability and trust between the two superpowers.
Despite these efforts, tensions have resurfaced. US Treasury Secretary Scott Bessent has proposed new universal tariffs on US imports, commencing at 2.5% and set to increase progressively. This proposal comes amidst a backdrop of retaliatory actions by China, which imposed tariffs on various US goods, including automobiles and soybeans. The tit-for-tat policies have reignited the trade war, significantly impacting the global economic landscape.
Bessent's tariff proposal has sparked concerns regarding its potential effects on inflation and currency valuation. He remarked that such tariffs "are inflationary and would strengthen the dollar—hardly a good starting point for a US industrial renaissance." This sentiment reflects broader economic anxieties as the trade war continues to disrupt global supply chains and reduce overall spending, particularly affecting investment.
The repercussions of these renewed tensions are palpable across various economic indicators. The trade conflict has fed directly into the Consumer Price Index inflation, causing ripple effects throughout the market. Moreover, President Joe Biden has maintained many of the tariffs imposed during Trump's administration and even introduced additional levies since taking office.
In a broader context, President Trump's initial imposition of tariffs not only targeted China but also extended to Canada and Mexico over a weekend, sparking fears of a global trade war. These actions have had lasting effects, evident in the multi-month-old downtrend in the EUR/USD pair. This downtrend highlights the increased demand for the US Dollar as a safe-haven currency, consequently diminishing Gold's appeal in the market.
The ongoing US-China trade war underscores the intricate balance of international economic relationships and the profound impact of policy decisions on global markets. As both nations continue to engage in reciprocal measures, the economic implications extend beyond bilateral relations, influencing wider global economic stability.