That new crisis is likely to reset the terms of the still-struggling economic warfare between the US and China. This renewed tension comes in the wake of Trump’s recent pledge during his 2024 election campaign to impose a staggering 60% tariff on Chinese imports. The expanded trade war we see today is a sad return to the first tariffs that Trump imposed in early 2018. He wanted to go after what he defined as unfair commercial practices, bait and switch, IP theft, and job stealing by China.
Since this trade conflict started, both countries have engaged in a number of tit-for-tat moves. Together, these actions have dramatically remade the global economic landscape. The Phase One trade deal, signed in January 2020, had temporarily promised to restore stability and trust between the two economic giants. Thanks to Trump’s latest bailout proposals, it seems that the tenuous peace brokered by this agreement will soon be broken.
Historical Context of the Trade Conflict
The US-China trade war that began in early 2018 caused the situation to significantly deteriorate. Around that same time, President Donald Trump initiated a wave of trade barriers directed at China. Trump saw these measures as a very personal, direct response to unfair competition. He further noted the widespread stealing of American IP by Chinese companies. The tariffs were not limited exclusively to industrial inputs; it spanned a broad array of products ranging from autos to agricultural exports such as soybeans.
China quickly retaliated by slapping its own tariffs on American products. This step set off a tit-for-tat escalation that harmed both countries’ economies. This tit for tat was more than just tariffs. It seeped into the technology and national security spaces, creating some nasty sentiments between the two countries.
Then in January 2020, against all expectations, the two countries signed the Phase One trade deal. This agreement was intended to address the underlying concerns that had led to the initiation of the trade war. This deal involved deep commitments from China to make structural reforms to China’s economic and trade practices. Although it was seen as a move in the right direction towards restoring order, many in the peanut world were still uncertain about its long-term success.
Implications of Trump’s Return
Donald Trump’s return to power seems set to rehash these fights. Throughout the campaign trail, he said—very unambiguously—that as president he would slap a painful 60% tariff on all Chinese imports. He promised to do exactly this if he returned to the presidency. This short-sighted proposal has raised the hackles of economists and business leaders the world over. It does indeed signal a dangerous escalation in the already dangerously escalated relationship between the two countries.
Under Trump’s guidance, a full-blown US-China trade war would pick up right where it left off. Yet tariffs are quickly becoming a signature issue for his administration once more. This would cause the two countries to spiral back into yet another round of tit-for-tat actions. The ramifications of these sorts of actions would ripple well beyond just the U.S.-China trade relationship, upending global supply chains and impacting international markets.
The last round of this trade war reduced spending and investment in each country. This decline has led to cascading impacts on global economic growth, leading to significant broader economic impacts. This time, analysts are worried that a second wave of tariffs would uplift existing economic fragilities and jeopardize the current economy’s inflationary pressures.
Current Economic Landscape
The economic repercussions of the US-China trade war are mounting and rushing through the economy at breakneck speed. The recent soft Consumer Price Index (CPI) reading for April has prompted discussions regarding potential rate cuts by the Federal Reserve later this year. Traders are watching US 10-year yields, recently at 4.45%. They are trying to figure out what each upcoming number on inflation will mean for the next expected monetary policy inaction or shift.
Not surprisingly, the odds of a rate cut have skyrocketed since earlier weeks. This recent turnaround can be attributed to increasing fears over inflation, especially due to its connection with still-ongoing trade conflicts. US Dollar Index has fallen sharply, recently breaking below that key 100-level psychological support. Currency changes could be on the horizon.
Yet President Joe Biden’s administration has largely maintained those tariffs that Trump laid down. Moreover, they’ve passed entirely new levies. That continuity in policy is an important signal that, no matter who occupies the White House, some form of China tensions are here to stay.
Global Economic Impact
With the revival of the US-China trade war under the Trump administration, it begs the question of what these conflicts mean for the global economy. Thanks to the last round of tariffs—indeed, a contributing factor to those tariffs—businesses and consumers around the world are still experiencing epic disruptions in global supply chains. While both nations are pursuing protectionist measures, their actions will most certainly have a cascading effect throughout world markets.
For investors and businesses, it has created a very uncertain landscape. They need to get ready for the inevitable trade policy changes or economic downturns that will come. Companies with exposure to China may need to reassess their strategies in light of heightened tariffs and potential supply chain issues.