The US-China relationship has undergone significant transformations, especially during Donald Trump’s presidency, which saw an intense escalation of trade tensions. Under Trump, the US waged a trade war with China, marked by tariffs and a strategy aimed at reducing America’s reliance on Chinese goods. While the administration of current President Joe Biden has taken a somewhat different approach, the core tensions in the US-China trade relationship have persisted, signaling ongoing challenges for the global economy in the years to come.

The Trump Era: A Trade War Defined by Tariffs and Decoupling

During Donald Trump’s presidency, US-China relations reached a critical point, especially in terms of trade. Trump’s “America First” policy aimed to reduce the US trade deficit with China and curb what he perceived as unfair Chinese trade practices. Central to his strategy was the implementation of tariffs, which became one of the defining features of the trade war between the two economic giants. Trump imposed tariffs of up to 100% on certain Chinese goods and proposed blanket tariffs of 10%-20% on all imports from China.

Carlos Casanova, a senior economist at Swiss private bank UBP, observed that the trade war under Trump was driven by a desire for economic decoupling between the US and China. “A Trump victory is highly likely to increase trade and economic hostilities between the US and China, ramping up the trade and financial decoupling between the two countries,” said Eswar Prasad, an economics professor at Cornell University. These sentiments echoed the broader economic strategies of the Trump administration, which sought to realign global supply chains away from China and penalize the country for issues such as intellectual property theft and currency manipulation.

The tariffs imposed during Trump’s presidency impacted a wide range of Chinese goods, including electronics, machinery, and textiles. These measures were not just meant to reduce the trade deficit but also to address the broader geopolitical rivalry between the US and China. Washington viewed China as a strategic competitor, and the tariffs were part of a broader effort to curb China’s growing influence on the world stage.

The Biden Administration: Continuity with New Emphases

Joe Biden’s administration, while different in tone, has largely continued many of Trump’s policies toward China. Although Biden has sought to rebuild alliances and take a more multilateral approach, the tensions between the US and China have not abated. In fact, Biden has retained most of the tariffs imposed during the Trump era, even adding new ones. In May 2023, the Biden administration announced new tariffs on approximately $18 billion worth of Chinese imports, including electric vehicles, solar cells, lithium batteries, and metals like steel and aluminum.

While Biden’s approach has been somewhat more restrained, it reflects a broader bipartisan consensus in the US on the need to confront China. Casanova noted that “ongoing trade tensions, both with the US and Europe, are here to stay. In the US, it’s well understood—the support for more stern actions against China is bipartisan.” This political reality suggests that no matter who holds office in the US, there is unlikely to be a significant thaw in trade relations between the two countries.

Vice President Kamala Harris, during a debate, did not offer specific details on China policy but emphasized the need for the US to remain competitive in technology and innovation. “A policy about China should be in making sure the United States wins the competition for the 21st century,” Harris said, stressing the importance of investing in American technology, particularly in areas like artificial intelligence (AI) and quantum computing.

The Broader Economic Impact of US-China Tensions

The ongoing trade tensions between the US and China have implications far beyond the bilateral relationship between these two superpowers. For instance, the Biden administration has expressed concerns about China’s excess industrial capacity, particularly in industries like steel, which has led to accusations of dumping goods in global markets. Treasury Secretary Janet Yellen has pointed out that China’s overcapacity poses a threat to firms in the US and Europe and could impede the industrial development of emerging markets.

In April 2023, Yellen met with Chinese officials to discuss these issues and stressed the need for market-oriented reforms in China. In her remarks, Yellen emphasized that “a healthy economic relationship must provide a level playing field for firms and workers in both countries.” However, the broader issue of China’s state-backed industries, such as electric vehicles (EVs), has drawn criticism from other countries as well. Both the US and Europe have levied tariffs on Chinese EVs, alleging that the heavy subsidies provided to Chinese manufacturers distort competition in global markets.

The Future of Global Trade and the Implications for the Economy

The sustained tensions between the US and China are likely to continue shaping global trade dynamics in the coming years. As both countries seek to secure technological dominance, particularly in emerging fields like AI and clean energy, the global supply chains are likely to experience further disruptions. The decoupling of the US and Chinese economies, which began under Trump, could accelerate, especially as both nations seek to reduce their economic interdependence.

This decoupling has significant implications for the wider global economy. Many countries, particularly in Asia, have benefited from the integrated supply chains that connect China with the rest of the world. A shift away from these structures could lead to disruptions in manufacturing, higher prices for consumers, and challenges for multinational corporations that rely on these global networks.

Moreover, the US-China rivalry extends beyond trade. The competition for technological supremacy could lead to the creation of competing standards and regulatory frameworks, which would fragment the global market and increase costs for businesses and consumers alike. For example, the race for dominance in 5G technology and AI is already creating distinct spheres of influence, with the US and its allies promoting one set of standards, and China advancing another.

The US-China relationship has undergone profound changes, starting with the trade war during Trump’s presidency and continuing under Biden. While the methods may differ slightly, both administrations have viewed China as a strategic competitor and have sought to reduce the US’s reliance on Chinese goods and services. As trade tensions persist, the implications for the global economy are significant, ranging from supply chain disruptions to increased geopolitical fragmentation. Going forward, the world will need to navigate these shifting dynamics, as the rivalry between the two largest economies shapes the future of global trade and technology.

(Source:www.cnbc.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy