America’s ongoing economic feud with China is escalating by the day. As the 2024 election campaign approaches, these misunderstandings will only exacerbate tensions during a crucial election. This war, which started in earnest in early 2018, has gone far beyond a meaningful debate to retaliatory tariffs and trade barriers. Donald Trump’s administration initiated the trade war by imposing restrictions on Chinese goods, significantly altering the landscape of US-China relations. With Trump’s recent pledge to impose additional tariffs on China, experts predict that the trade war may resume with renewed vigor, potentially impacting the global economy and disrupting supply chains.
On January 15, 2020, the US and China signed the Phase One trade agreement. This historic deal sought to curb violence and rebuild faith in justice between the two countries. What the deal really required was for China to make substantial structural changes in its economic and trade policies. That act strongly influenced relations that followed. Assuming Trump indeed returns to high office in January 2025, the political landscape will have shifted dramatically. Fears are beginning to spread that we could be returning to a cycle of tit-for-tat tariff policies.
Background of the US-China Economic Conflict
The US-China economic war, which started in early 2018, has gone through several phases. Around the same time, then-President Donald Trump began rolling out retaliatory trade barriers on Chinese imports. This was an effort to address trade imbalances. It attempted to address the wide-scale intellectual property theft that the Trump administration asserted to be prevalent in China’s economic practices. Inflation tariffs increases on various commodities led to a hawkish turn against China. This action set off a chain reaction of retaliatory measures by Beijing.
Faced with mounting pressures, China retaliated by imposing tariffs on hundreds of U.S. goods. In practice, this announcement aimed directly at the auto industry and soybean exporters. These tariffs disproportionately impact a few targeted industries. They introduced chaos into the global marketplace, prompting fears over broad economic contagion. The trade war had reached a boiling point after both countries began imposing tariffs on each other. This merry-go-round did the public no favors, to businesses or consumers.
This achievement after years of negotiations became the signing of the Phase One trade deal in January 2020. This arrangement aimed to bring order to a turbulent relationship between the two rising economic powers by holding China accountable for making major reforms. Other reforms include pledges to boost the use of American-made products and relax intellectual property rules. Though a welcome and surprising relief from the growing Saudi-Iranian confrontation, the deal did not address larger grievances.
Implications of Tariff Policies on Global Economy
As the 2024 election approaches, Donald Trump is telegraphing his moves. He even plans to slap a 60 percent tariff on goods made in China if he’s re-elected. Further, this announcement is an ominous indicator of the deepening military tensions and thus risk of unwanted conflict between the US and China. Opponents caution that these extreme actions could set off a catastrophic trade war. This could include retaliatory tariffs and increasing economic duress.
These policies’ impacts go beyond just the bilateral relationship. Together, they could significantly re-orient the global economic playing field. A new wave of trade restrictions would have a devastating impact on supply chains that have only grown more complex and intertwined in recent decades. Business models heavily dependent on US and Chinese markets will face significant existential threats. Without a correction, this would lead to lower consumption and capital formation.
These trade tensions could have a direct effect on U.S. inflation as well. Tariffs have increased costs for American businesses that import products from China. Consumers will end up shouldering these extra costs. This would have significant implications for the Consumer Price Index (CPI). It can actually add to the inflationary pressures that policymakers are already concerned about.
Effects on Investment and Gold Prices
At the same time, the US-China trade conflict adds significant uncertainty. As a result, during an economic downturn, investors may seek capital preservation in more stable assets, such as gold. If past is prologue, history indicates that heightened economic uncertainty leads to an increase in gold prices. Investors looking to find security during times of uncertainty are putting more money into gold. Some analysts believe that if tensions flare up again, there will be more investments in gold to hedge against future market disruption.
In addition, both countries’ economic agendas will be crucial to determining the future of global investment flows. As tariffs continue to rise as expected, investor confidence will fall and therefore result in decreased spending in many areas. This dramatic drop in investment would severely dampen the US path to economic prosperity. It would have the deepest consequences for China and other countries that rely on robust economic ties between the two powers.
Further, with businesses facing a more complex tariff environment and regulatory regime, many will look to re-assess their supply chain to maintain competitive advantage. Businesses may look for other sourcing opportunities or other places to produce goods facing severe tariffs to avoid such costly risks. This change alone would upend entrenched supply chains and usher in even more turbulence to precarious global markets.