The ongoing economic war between the U.S. and China, which started in early 2018, illustrates these challenges well. Unfortunately, it is now teetering on the brink of getting even worse. The trade war started the way most wars do — with a surprise attack — thanks to then-President Donald Trump. He implemented significant trade barriers to address what he identified as “unfair commercial practices” and intellectual property theft by China. Skip ahead to January 2020 and the signing of the Phase One trade deal. This pact sought to bring back predictability and confidence for businesses in both countries through public implementation of major structural reforms to China’s economic and trade system. With tensions brewing again, both sides seem ready to clash again.
Since 2018, President Trump’s administration has been imposing tariffs on various Chinese products. This taxation led China to respond in-kind, erecting its own tariffs on American exports such as cars and soy beans. These escalating tensions resulted in significant disruptions to global supply chains and a notable decline in investment spending, which contributed to inflation reflected in the Consumer Price Index.
The Phase One trade agreement was supposed to put an end to these hostilities. As a result, it consisted of concrete commitments on both sides to adopt major, enforceable reforms and changes to their respective trade practices. Given the state of political affairs, we can expect a resurgence of the trade war in the near future. The Biden administration has largely maintained the tariffs that Trump instituted. They have imposed new levies, which further worsens the burgeoning relationship between the two countries.
The Legacy of Tariffs and Trade Barriers
In 2018, President Trump’s tariffs lit the match to start this costly trade war. That conflict is still widely felt and used to generate resentment at the present time. In an attempt to punish China for unfair trade practices and alleged theft of U.S. intellectual property, Trump imposed billions in punitive tariffs on China. This short-sighted approach strained diplomatic relations and prompted retaliatory actions against the United States from China. American exports took the brunt, setting off a cascading chain reaction across international markets.
When the Phase One bilateral trade deal was signed in January 2020, expectations were still lingering that something would save the day. They thought it would lead to greater economic collaboration and peace. The deal was supposed to force China to make meaningful structural reforms that would have led to a more even trading playing field. Even with these commitments, the tensions underneath have hardened over the last month, supercharged by the recent political shakeup and the threat of persistent tariff policies.
President Joe Biden’s policy choice to keep most of Trump’s tariffs represents a broader trend of sticking with confrontational economic approaches. In addition to maintaining existing tariffs, Biden has introduced further levies, reflecting a cautious approach towards engagement with China amid ongoing geopolitical concerns. As these two nations continue to grapple with their delicate relationship, the threat of a major trade war resurfaces.
Future Prospects Amid Growing Tensions
As the political landscape shifts towards the 2024 election cycle, former President Trump has made headlines by pledging to impose up to 60% tariffs on Chinese imports if he returns to office. This extreme step would certainly raise the stakes in the trade war to a new high. It would set a disastrous precedent for the future of the global economy.
Unless the courts intervene, Trump will be inaugurated for his second term on January 20, 2025. Analysts expect that the US-China trade war will escalate in response. Such a re-introduction, if it takes place, would likely set off a cycle of retaliatory measures from each country. These moves would greatly add to the destabilization of global markets and inflationary pressures globally.
Chinese Foreign Minister Wang Yi expressed hope that the United States would work this out in partnership with China. He expects from both countries to start enforcing the deals signed during past US administrations. This kind of collaboration seems important not only for avoiding or addressing conflicts that may arise but for promoting economic security. With each party dug in on their fighting stance, working across the aisle continues to be an uphill battle.
Economic Implications of Renewed Conflict
Beyond the two countries, the global economy is bearing the brunt of the US-China trade war. Tariffs have created a larger disruption by increasing uncertainty and therefore reducing consumption and capital expenditure worldwide. This poses huge ramifications for supply chains that span across hundreds of industries.
Increased uncertainty regarding US-China relations is making businesses afraid to commit to long-range investments. This skepticism risks hampering potentially positive steps on economic development on both sides of the border. The effect of these disruptions has been felt in inflation, too. Tariff costs are assumed by consumers, pushing up costs even further.