The cold economic war between the US and China has escalated. Both of these countries are preparing to continue the trade discussions again soon. The discussions, set to take place in London on Monday, come amid heightened tensions following the return of Donald Trump to the presidency. The US-China trade war started in 2018 with the then Trump administration slapping trade barriers on China. Since then, both countries have responded with wave after wave of measures that have altered the playing field of the world economy.
The trade war, marked by unprecedented levels of protectionism, has had profound consequences for both countries and the world. As the 2024 presidential election campaign developed, Trump promised to reinstate 60% tariffs on all Chinese imports when “re-elected” in a second term. When he took the oath of office as America’s 47th president on January 20, 2025, the drama erupted again in earnest. This policy shift tremendously aggravated market fear and increased risk aversion by investors.
The Resumption of Economic Hostilities
The US-China trade war started in early 2018. That’s when then–president Donald Trump hit the trade war button, deploying a slew of tariffs in an attempt to reduce the trade deficit with China. The conflict has developed into a complicated tangle of economic measures impacting both countries. When the US placed tariffs on China, China returned fire. In turn, they retaliated by imposing levies on American products—most notably, American manufactured automobiles and the American soybean.
A temporary resolution came in January 2020 with the signing of the US-China Phase One trade deal. The deal required deep structural reforms in China’s mercantilist economic practices. Its purpose was to bring back an atmosphere of trust and stability between the two countries. Despite this agreement, tensions remained high. The Biden administration continued most of those tariffs, and even imposed new ones, deepening the trade rift during the last few years.
The return of hostilities after Trump’s return to office still weighs heavily on economic sentiment around the world. This anti-trade populism has resulted in a notable downturn in consumer spending and investment. Continuing this shift is an important driver of inflation rates in both countries.
Market Reactions Ahead of Trade Talks
As investors prepare for another round of high-stakes trade talks, the financial markets have shown signs of increased pessimism. The US stock index futures were down around 0.2% to 0.25%, reflecting a risk-averse mood from traders. Investors are understandably anxious for news out of London, as any headline could dramatically change the picture in either direction.
Christine Lagarde, President of the European Central Bank, underscored the ongoing economic challenges that accompany such geopolitical tensions, stating:
“There is still a long way to go until inflation is squeezed out of the economy.”
Her comments illustrate the far-reaching effects of the US-China trade war. This turmoil affects the national economy of each impacted country and sends shockwaves through international markets as they respond to shifting policies and protectionist sentiment.
The Broader Impact on Global Supply Chains
Nationalistic barriers are escalating between these two great economies platforms. Consequently, businesses across the globe—large and small—are experiencing greater costs and unpredictability when procuring necessary raw materials and producing finished products.
These disruptions in supply chains have already been hitting all kinds of industries, causing widespread delay and higher cost to consumers. This fed worry about inflationary pressures that still reverberate through the world’s economies. Taking stock of global trade, market analysts stress that finding a peaceful resolution to these trade tensions is key to bringing stability and confidence back to global markets.
The next meetings scheduled to take place in London will be a pivotal moment for US-China relations going forward. Yet they will be among the most important determinants of the overall health of the global economy. All stakeholders are looking forward to a productive conversation. Their hope is that it would result in lower tariffs and a more collaborative tone going forward.