With the US-China trade war that started in early 2018 now in a new and more complicated phase, relations between the two countries have soured even further as Donald Trump assumed the presidency again on January 20, 2025. Since the start of this ongoing conflict, trade policy and economic relations in general have drastically shifted. These transitions are affecting global supply chains and inflation remarkably.
In 2018, President Trump started the trade war by implementing new tariffs and other trade barriers against China. He did this primarily in response to anti-competitive, unfair, and allegedly IP stealing commercial practices. China responded vigorously to this muscular posture. They retaliated with punitive tariffs on a long list of US products, from American cars to soybeans. In January 2020, we found ourselves at a crucial inflection point. After a prolonged period of instability and volatility, both nations signed the Phase One trade deal – working towards rebuilding stability and trust back between the two nations.
The Phase One Trade Deal: A Step Towards Stability
The Phase One trade deal represented an effort to address the underlying issues that fueled the trade war. It proposed a number of structural reforms and changes to China’s economic and trade regime. Together, these detailed, complementary efforts accomplish the important work of leveling the playing field for American businesses. The agreement aimed to do more than just reduce current tensions, but serve as a baseline for future negotiations.
Despite these efforts, the efficacy of the Phase One deal has already been undermined. Experts warned that the new status only distracted from larger conflicts. It failed to tackle the big picture on China – trade practices. President Joe Biden opted to maintain the existing tariffs instituted by Trump and even introduced additional levies, contributing to an atmosphere of uncertainty.
With Trump’s return to office in 2025, experts predict that the trade war would become even more punitive and severe. In preparation for his 2024 election campaign, Trump extravagantly promised tariffs of up to 60% on all Chinese imports. Such a dramatic step would be a major game changer on the global trade chessboard. It remains unclear how far either country intends to go with these tit-for-tat policies, but this potential escalation would be alarming.
Economic Impacts and Global Supply Chains
The deep, ongoing impacts of the Trump Administration’s trade war are still wreaking havoc on the world’s economic stage. With disruptions in supply chains a familiar occurrence, costs have been monumental for businesses and citizens. As tariffs have jacked up prices on affected goods, consumers have started to spend drastically less. This dramatic decline is contributing directly to the inflationary pressures we are seeing.
Indeed, new data indicate that US PCE inflation cooled significantly in March. This was below the market’s expectations of 0.9%, but it still represented a monthly increase of 0.5% and a year-on-year rise of 2.3%. Even this unexpected softening was not enough to assuage economists’ concerns about the long-term effects of protracted tariffs. Many experts have sounded the alarm that continued hostilities between the US and China would be detrimental to economic growth. This development risks further inflationary pressures for both countries.
Moreover, recent disappointing US employment and growth numbers have increased risk aversion among investors. Lingering fears over a recession have led organizations of all sizes to reconsider their risk, particularly to sectors and markets that US-China relations have severely disrupted. With both countries deeply dug in, the chance of breakthrough looks more and more elusive.
The Future of US-China Relations
Prospects for US-China relations may be as uncertain as they have ever been. Both sides are clearly still juggling their respective domestic priorities with plenty of international pressure. Increasingly, the trade war is at the center of all debates over the future of economic policy, national security, and America’s place in the world. As Trump returns to his original hardline approach, observers forecast the fallout will echo beyond just the bilateral trade.
The impact of this new wave of conflict has wide implications, particularly in technology and agriculture. The bottom line Companies further dependent on trade with China will be hit hard as tariffs raise costs and break apart long-settled supply chains. In addition, wider geopolitical tensions might play a role in shaping other countries’ plans in playing to their relationships with each superpower.