The ongoing economic war between the US and China began in early 2018. It continues to change with notable new developments. The trade war, initially ignited by former President Donald Trump’s imposition of tariffs on Chinese goods, has led to significant changes in both nations’ economic policies and relationships. This goes to show that as negotiations continue in London, the stakes couldn’t be higher and the implications couldn’t be wider.
In January 2020, the two countries signed the Phase One trade agreement. This deal was supposed to bring back some stability and trust following several years of rising tensions. However, the situation remains fragile. His successor, current President Joe Biden, has largely maintained these tariffs that were enacted by the Trump administration. He’s gone and raised additional levies, deepening the standoff on the pocketbooks. Though impeachment trial proceedings are happening now, Trump is campaigning for his return to the presidency in 2024. He pledges to increase the trade war with China by adding 60% tariffs on Chinese goods.
The Origin of the Conflict
The US-China economic conflict that started in early 2018. That’s when President Trump first launched a war of trade barriers on China. Citing unfair trade practices and intellectual property theft, he implemented tariffs on various Chinese goods, aiming to protect American industries and jobs. This was the first shot of a long trade war that would upend global economic relations.
In response, China retaliated with tariffs on American goods. It hit especially hard at key sectors, such as automobiles and agricultural products such as soybeans. These retaliatory measures initiated a cycle of escalation as both countries attempted to defend their interests. Despite those efforts, the trade war damaged bilateral relations. It scrambled global supply chains and upended investment trends into almost every industry.
This all came to a head in January 2020 when the U.S. and China signed the Phase One trade agreement. This deal obligated China to make major structural reforms and other changes to its economic and trade regime. The agreement’s intent was to bring some predictability and confidence back. Economists and policymakers today debate its effectiveness.
Lasting Impacts on Economies
The broader impact of the US-China trade war goes far beyond the immediate conflict. The imposition of tariffs increased consumer prices both in the U.S. and China, accounting for 25-50% of inflation. In the United States, businesses only increased prices to cover sudden tariffs. In turn, the Consumer Price Index saw record inflationary jumps. This inflationary pressure has caused many to question the current health of our economy.
In the UK, annual wage inflation took a dip amid this stormy period, falling from 5.5% to 5.2%.1,212 As with everything else in today’s complex, interconnected global markets, the impact of any worsening US-China trade relations has ramifications across the globe. Many businesses have faced increased costs and reduced spending capacity, particularly in investment sectors that rely heavily on stable international trade.
As negotiations continue in London, stakeholders are keenly aware that any resolution could take time and require significant concessions from both parties. The continued conflict is still front and center for the global economic discussions.
Future Outlook Amid Renewed Tensions
Donald Trump’s second potential return to the White House has come into view. Many Americans are becoming concerned about the prospect of a showdown turning violent. His pledge to impose 60% tariffs on Chinese goods could lead to an unprecedented level of confrontation between two of the world’s largest economies. Such a move would only worsen the economic woes India already faces and further sour an already fraaying bilateral relationship.
President Biden’s real focus should be on keeping any of the current tariffs on China in place. Simultaneously, he is sincerely looking for diplomatic opportunities to negotiate. As trade talks resume in London, it remains uncertain whether both sides can find common ground amidst rising political pressures.
These negotiations have the potential to be transformative. Their effects will be seen long beyond just in the US and China, shaking up countries’ economies around the globe. As businesses navigate this complex landscape, they remain watchful for signals that could indicate shifts in trade policy or economic strategy.