In recent months, we have witnessed the adoption of unprecedented tariff policies by the US to many countries that have trade surplus with the US, especially against China. Based on Donald Trump’s campaign speeches, it was known that he would adopt a tough trade policy towards Beijing when he came to power. The predictions came true, but the scale of the 145% duty hike on all Chinese goods, as well as the simultaneous adoption of mirror measures by the Chinese government with a 125% duty hike on U.S. goods, came as a surprise to many. By taking retaliatory measures, China has made it clear that it is not going to give in to threats from the US and will “fight to the end” in this trade war.
In turn, the White House threatened China with additional duty hikes of up to 245% for retaliating to Chinese actions. The Wall Street Journal reported that US President Donald Trump plans to convince more than 70 countries to isolate China’s economy in exchange for lifting duties on imports.
In response, Beijing has begun a gradual reorientation towards the markets of the EU, ASEAN and the One Belt, One Road (OBOR) initiative countries. Moreover, China has successfully shifted its production capacity to Southeast Asia and Mexico as part of its diversification of trade ties. Also in the face of high duties, Beijing has sent official letters to the governments of major nations affected by Washington’s duty hikes. In particular, active negotiations are being held with the eastern allies of the United States – South Korea, Japan and Australia, and from April 13 to 17 Xi Jinping’s tour of Southeast Asian countries – Vietnam, Malaysia and Cambodia – took place.
Along with this, attention should be drawn to the lack of willingness of Trump and Xi to make mutual compromises. At the beginning of Trump’s second term, attempts by Chinese representatives to establish direct channels of communication with Washington were unsuccessful, and the new White House administration is in no hurry to initiate negotiations with Beijing. The lack of stable communication channels between the leaders and their proxies creates a risk of further escalation of U.S.-China disagreements. It is not excluded that the subsequent steps of the parties will be mirror-like in nature, which will only complicate the prospects of launching full-fledged high-level negotiations.
Thus, taking into account the combined share of the U.S. and China in the world economy (about 43%), the scale and depth of the trade confrontation between the world’s two largest economies is reaching an unprecedented level. This could cause serious tensions in global trade with potentially negative consequences for the entire world economy, especially in terms of supply chain resilience. Given the new challenges, many countries are seeking to diversify their foreign trade relations, which leads to the revision and reformatting of the structure of world trade.
Analysts believe that the introduction of high tariffs will deal a particularly heavy blow to the economies of middle-income countries, whose sustainability depends largely on export revenues. In the near future, such countries may face capital outflow and lower growth rates. However, the prolonged trade friction between the U.S. and China also opens up new opportunities, such as attracting investment from both sides, creating joint production facilities, and developing alternative transportation and logistics routes.
* The Institute for Advanced International Studies (IAIS) does not take institutional positions on any issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of the IAIS.
