A dizzying escalation of tariffs has unraveled a trade relationship between the United States and China, jeopardizing the fate of both superpowers and threatening to drag down the world economy.
The recent brinkmanship between the two nations has surpassed the battles waged during President Trump's first term. From 2018 to 2019, Trump raised tariffs on China over 14 months, while the current escalation has occurred in a matter of days, with significantly higher levies affecting a broader range of goods.
On Wednesday, Trump responded to China's decision to match his 50 percent levy with an additional duty, raising the import rate on Chinese goods to 125 percent. Despite Trump's aggressive stance, China has refused to back down, increasing its tariffs on American imports to 84 percent and vowing to "fight to the end." This approach aligns with Xi Jinping's vision of redefining the global order with Beijing at its center.
Experts warn that the relationship, which has shaped the global economy in the 21st century, is at risk. The economic interdependence benefited both sides: American companies relied on Chinese factories to keep consumer prices low, while China gained jobs and investment that improved the living standards of millions. However, concerns have grown in the U.S. regarding its vulnerability to Chinese pressure over critical technological components and materials.
The potential for significant disruption to the flow of goods between the two nations poses a serious threat to both economies and their trading partners. Economists warn that the divide could drive the U.S. into recession, while China faces a painful separation from its largest trading partner, which imports over $400 billion in goods annually.
As the two countries engage in escalating tariffs, the impact will likely reverberate globally. The current conflict follows Trump's imposition of a base tariff of 10 percent on most U.S. trading partners, along with levies on foreign-made cars and imported steel and aluminum.
Initially caught off guard by Trump's changes to global trade rules, China retaliated with its own tariffs but quickly ran out of American goods to target. A truce was reached in January 2020, but many viewed the agreement as unfavorable to China.
During his campaign, Trump suggested imposing tariffs of 60 percent on Chinese imports, which many economists dismissed as hyperbole. However, this rhetoric allowed China to prepare countermeasures that could inflict economic pain on the U.S.
Some Chinese companies are already seeking alternatives to the U.S. market, with plans to export six million electric vehicles this year, nearly none of which will go to the United States. While a global recession is possible, analysts suggest the risk may be greater for the U.S.
Recent economic forecasts have shifted, with many predicting a U.S. recession following the imposition of tariffs. The tariffs are expected to raise inflation, increase unemployment, and slow growth in the U.S. economy.
The impact of the tariffs will be felt across various sectors in the U.S. economy, particularly in technology, where a significant percentage of consumer electronics are sourced from China.
China is also grappling with its own economic challenges, including a property crisis and high unemployment rates. Despite expectations of stimulus spending, Goldman Sachs downgraded its growth outlook for China.
For small businesses in both countries, the breakdown in trade relations poses an existential threat. One California business, which relies on components from China to produce electronic thermometers for animals, has faced devastating consequences due to the tariff increases.
The rapid escalation of tariffs has placed many businesses in precarious positions, with some on the brink of being priced out of the Chinese market entirely.