An economic conflict between the United States and China, which began in early 2018, has reignited with the return of President Donald Trump to office. On January 20, 2025, President Trump announced plans to impose a staggering 60% tariff on Chinese imports, reigniting trade tensions that had previously simmered with the signing of the US-China Phase One trade deal in January 2020. In swift retaliation, China's Ministry of Commerce declared that it would levy a 15% tariff on US coal and liquified natural gas (LNG) imports. This renewed exchange of economic blows threatens to further disrupt global markets and rekindle the uncertainty that characterized their earlier trade war.
The initial conflict began when President Trump accused China of unfair commercial practices and intellectual property theft, leading to the imposition of a 10% tariff on Chinese exports to the US. In response, China placed tariffs on American goods such as automobiles and soybeans. The tit-for-tat tariff exchanges escalated until both countries reached a temporary resolution with the US-China Phase One trade deal, which aimed to restore some stability and trust by mandating structural reforms and changes in China's economic policies.
Despite the Phase One deal's intentions to mend fractured relations, the global economic landscape experienced significant upheaval due to the trade discord. Supply chains were disrupted, reducing spending and investment worldwide. The conflict also influenced financial indices such as the Consumer Price Index (CPI) inflation. The Australian Dollar (AUD), for example, has been particularly vulnerable, with the AUD/USD pair recently down by 0.63% following the conflict's renewed tensions. The ongoing trade war has seen the AUD/USD pair extend its losses below 0.6200, highlighting its bearish trajectory.
Conversely, the US Dollar (USD) has shown resilience in the face of these economic skirmishes. The initial 10% tariff on Chinese goods contributed to an appreciation of the USD, providing some economic cushioning amidst global uncertainty. Meanwhile, gold prices have attracted buyers amid apprehensions regarding Trump's aggressive tariff strategies, signaling investors' search for safe-haven assets in turbulent times.
The repercussions of these economic hostilities extend beyond currency fluctuations. The trade war has posed substantial challenges to global commerce by imposing higher costs on businesses and consumers, thereby stoking inflationary pressures. As China and the US stand at economic loggerheads once again, there are concerns over potential ripple effects across various sectors, including technology, manufacturing, and agriculture.