The US-China trade war that began in early 2018 has continued to be a contentious and pointedly divisive issue. That dynamic is primed to escalate once more when former President Donald Trump retakes the White House on January 20, 2025. The trade conflict began when President Trump imposed trade barriers on China. As his justification, he called out unfair commercial practices and intellectual property theft. China wasted no time in retaliating, slapping tariffs on a wide variety of US goods, including cars and soybeans. This move only escalated the growing tensions between these two global economic titans.
In January 2020, both countries signed the US-China Phase One trade deal, which aimed to stabilize relations by requiring structural reforms and other changes to China’s economic and trade practices. Even with all of these overtures, the recent political landscape indicates that the trade dispute is anything but settled. His successor, current President Joe Biden, decided to keep the original tariffs and even imposed new levies during his term.
Background of the Trade War
While the coronavirus pandemic is a global crisis, the US-China trade war started when President Trump called out China for their unfair trade practices. He railed against the camel’s nose under the tent like intellectual property theft and trade imbalances he saw as stacked against China. In answer to those allegations, Trump slapped over $300 billion worth of tariffs on almost all Chinese imports. This began a tit-for-tat trade war that saw China respond by imposing tariffs on dozens of U.S. products.
The mounting trade tensions fueled concerns about broader economic damage. Implications of these issues go beyond the two countries, affecting the entire world economy. Once the conflict escalated and started directly affecting businesses, they began to experience the heat. Consumers felt the impacts almost immediately when supply chains were put under unprecedented stress. As a result, there was tremendous pressure on both countries to reach an agreement.
Even the signing of the Phase One trade deal in January 2020 provided only a brief hiatus in the warring. This deal required China to make historic concessions on key economic policies and restore faith between the two nations. Many analysts viewed this deal as insufficient to address the underlying issues that had sparked the conflict in the first place.
The Current State of Affairs
As the political landscape continues to change with Trump’s return, so does the potential for these tariffs to be reinstated. During the 2024 election campaign, Trump announced his intention to impose a staggering 60% tariff on Chinese imports if he regained office. This pledge marks a new commitment to stronger unilateral trade actions to limit China’s reach in international markets.
According to US Treasury Secretary Scott Bessent, the lines of communication between the US and China remain open. He stressed that de-escalation would mostly be contingent upon Beijing’s readiness to work on correcting our trade deficit. Bessent’s comments certainly indicate an eagerness for greater exchange but highlight the challenges still inherent in diplomatic relations between US and Cuban governments.
Chinese Foreign Minister Wang Yi has expressed doubts about making concessions. He contended that offering concessions would only empower what he called “the thug.” Despite his obvious frustrations, he recognized that dialogue was still key to bridging the gap of disagreement between the two powers. This contrast between viewpoints shows just how difficult the path forward will be to reach a truly sustainable fix.
Economic Implications
The US-China trade war is rearing its ugly head again, and it’s set to affect both economies significantly. The impact will be felt across the global economy. Consumer spending down We should expect to see less investment from consumers as uncertainty continues to hover over businesses and markets. The world will soon remain gripped by heightened tensions that will continue to impact global supply chains. Consequently, consumers and businesses will pay higher prices.
The trade conflict will have a direct impact on inflation, especially as seen in the Consumer Price Index. As tariffs increase prices on imported goods, American consumers are already starting to pay more in many industries. The impact of this inflationary pressure would add to the difficulties of restoring economic recovery in both countries.
As companies navigate these turbulent waters, they must adapt their strategies to mitigate risks associated with increased tariffs and supply chain disruptions. Companies that depend on Chinese imports need to shift their supply chains. They have to change their pricing practices to be relevant and competitive.