A rapid escalation of tariffs has severely strained the trade relationship between the United States and China, which was developed over many years, endangering the future of these two major global powers and posing a risk to the world economy. The confrontational tactics employed by both countries have significantly surpassed those seen during President Donald Trump’s first term. In 2018 and 2019, Trump imposed tariffs on China over 14 months. The latest escalation, however, occurred primarily over a matter of days, with higher tariffs applied to a wider range of goods.
On Wednesday, Trump reacted to China’s move to impose a 50% levy—retaliation to a previous U.S. tariff—by imposing an additional duty, increasing the rate on Chinese imports to 125%. Despite Trump’s aggressive approach, China has firmly resisted, raising its tariffs on U.S. goods to 84% and, on Thursday, reinforcing its commitment to “fight to the end.” This strategy aligns with Xi Jinping’s vision of redefining the global order with Beijing at the center. Orville Schell, the Arthur Ross director of the Center on U.S.-China Relations at Asia Society in New York, remarked that the well-established trade fabric between the countries is disintegrating.
The future of a relationship that has significantly shaped the 21st-century global economy is uncertain. Both parties have historically benefited: American companies’ reliance on Chinese manufacturing kept consumer prices low while boosting corporate profits, and in return, China gained employment and investment, lifting millions out of poverty. As China’s economic power expanded, it became a lucrative market for American brands. Nonetheless, China’s rise and the U.S.’s growing concerns about dependence on China for key technological and manufacturing components have tested this arrangement. The impending disruption of billions of dollars worth of trade between China and the U.S., and the consequent impact on global trade, threaten both economies and their partners.
Steven Okun, CEO of APAC Advisors, questioned whether countries will have to choose between the U.S. and China. Economists predict that this divide could potentially lead the U.S. into a recession while China’s economy faces a challenging separation from its largest trading partner, which imports over $400 billion in goods annually. The U.S. economy may face increased inflation, unemployment, and slower growth due to Trump’s tariffs on various countries and goods, including cars and metals.
China, taken aback by Trump’s initial changes to global trade rules, has responded with matching tariffs and threats to restrict critical mineral supplies. Analysts believe the potential for increased division between the U.S. and China is higher than before. The conflict has led some Chinese companies to explore markets beyond the United States. As per Dan Wang from Eurasia Group, China plans to export 6 million electric vehicles this year, with almost none to the U.S., highlighting the broader implications of the trade conflict.
With predictions of a potential global recession, many forecasters have revised their economic outlooks. Originally seen as robust, the U.S. economy now faces possible recessionary conditions, as higher inflation, increased unemployment, and slowed growth are anticipated. Carl Weinberg, chief economist at High Frequency Economics, suggested that a recession might have already begun in the U.S.
The tariffs will significantly affect the U.S. economy. Wendong Zhang of Cornell University noted the high dependency on China for electronics such as smartphones and laptops. Meanwhile, China is recovering from a property crisis that has impacted its entire economy, leading to financial strain and high unemployment.
Goldman Sachs has downgraded its expectations for China’s economic growth from 4.5% to 4%, despite expected stimulus spending. The U.S. tariffs will likely reduce demand, and wary global partners might not compensate for the decreased trade with the U.S.
Small businesses in both countries are suffering from the sudden breakdown of their trade partnership. For instance, John K. Thomas, owner of GLA Agricultural Electronics in California, highlighted the critical role China plays as his second-largest customer base. Recent tariff increases have jeopardized his ability to continue business with Chinese customers, effectively shutting him out of the market after China escalated its tariffs to 84%.
This article was originally published in The New York Times.
