The eye-opening escalation of tariffs unravels the decades-old US-China trade ties, putting the fate of two superpowers at risk and threatens to lower the global economy.
The brink that both countries show is already far beyond the battle they fought during President Trump's first term. In 2018 and 2019, Trump raised tariffs in China for 14 months. The latest escalations have been rolled out mostly for almost several days, with taxation being much higher and broader products being applied.
On Wednesday, Trump rebutted China's decision to match 50% collection. This was a penalty for Beijing's measures against previous US tariffs, which accompanied additional obligations, and raised the rate of Chinese imports to at least 145%.
Just as Trump pushed, China refused to retreat. China has raised tariffs on goods imported from the US to 84%. On Thursday, he pledged to “fight” again. This is an approach that coincides with the way the country's top leader, Xi Jinping, tried to redefine the global order with Beijing rather than Washington.
“We are approaching the split of a monumental train wreck,” said Orville Shell, director of Arthur Ross, the Center for American China Relations at the Asian Association of New York. “The fabrics we've been very carefully woven over the past decades are falling apart.”
What is at stake is the relationships that shaped the world economy in the 21st century. For years, both sides benefited. With the widespread use of American companies' Chinese factories, prices have curbed American consumers and filled the profits of the country's biggest companies. China has gained jobs and investments that have separated millions of Chinese families from poverty. And as China's expenditure grew, it opened up a huge and profitable market for American brands.
The arrangement has been tested by China's emergence as a global force, raising concerns that China has become more vulnerable to pressure than access to advanced technology and components and materials essential to manufacturing.
It is not clear who will flash first, or whether both sides can find a common foundation. One thing is certain, the looming disruption of billions-dollar worth of goods flows between China and the US, and the trade that often passes through other countries will have a devastating impact on both the economy and its trading partners.
“We can't model this,” said Steven Okun, CEO of APAC Advisors, a geopolitical consulting firm. “Do countries have to choose between the US and China?”
Economists predict that this division could lead the US economy to a recession. At the same time, the Chinese economy is facing the prospect of a painful divorce from its largest trading partner, which purchases more than $400 billion in goods each year.
As the US and China are the heart of the global economy, their impact reverberates everywhere. Their sparring imposes a trade obstacle that has been largely forgotten in recent tariff whipping, as Trump imposed a 10% basic tariff on most US trading partners and collections of foreign-made cars and imported steel and aluminum.
Beijing was caught off guard when Trump changed the rules of world trade in his first term. It coincided with US duties and its own duties on imports from the US. However, Beijing quickly ran out of American goods and punished him. This is because China rarely buys from the US. Both countries reached a ceasefire in January 2020. This is an agreement that was deemed unfavourable to the Chinese side in Beijing.
Last year's campaign trail, Trump seemed willing to go further. He spoke about imposing a 60% tariff on Chinese imports. Most economists and investors dispelled stump speeches as exaggerations. This is the promise of a campaign to collapse in the face of economic reality.
But it provided China with sufficient warnings to devise measures that would inflict the greatest economic pain on the United States. So far, Beijing has responded to Trump with high tariffs and a horrifying reminder that it could choke down his critical mineral supply.
The possibility that the conflict will further separate the two countries is greater than ever.
Dan Wang, director of the Eurasia Group's Chinese team, said some Chinese companies are already looking beyond the US. For example, China plans to export 6 million electric vehicles this year, with few in the US. She said there is a possibility of a global recession, but the risks are high in the US.
Three months ago, the International Monetary Fund provided economic forecasts for next year. The US economy was better than almost everything else.
Today, many forecasters are seeing the possibility of a recession in the US. After Trump imposes tariffs that stab nearly every country, analysts are predicting higher inflation, more unemployment and slower growth in the United States.
“We believe the recession is already underway and the economy will deteriorate significantly in the second quarter,” said Carl Weinberg, chief economist in high frequency economics, before Trump overturned himself with some of the non-Chinese tariffs.
The effects of tariffs can be felt throughout the US economy. Wendong Chang, an assistant professor of applied economics and policy at Cornell University, said 73% of smartphones, 78% of laptops, 87% of video game consoles and 77% of US toys come from China.
China is part of it, delving into the property crisis that touches the entire economy. Local governments struggle to raise enough funds to pay for their qualification programs, but financial institutions are plagued by debt. Unemployment is high, and young people struggle to find promising jobs.
On Thursday, Goldman Sachs downgraded expectations for the Chinese economy despite expecting huge amounts of stimulating spending by Beijing. This year's growth outlook has been reduced from 4.5% to 4%. This is high growth by US standards, but China's pace has slowed.
China relies on pouring goods from Chinese factories to offset the weaknesses of other economies. However, US tariffs have set demand, and while other Chinese trading partners are already wary of a major flood of Chinese goods, they may be reluctant to pick up sagging.
For both China and the US, the sudden burst of trade partnerships is devastating. Presents an existential threat to John K. Thomas. John K. Thomas makes animal electronic thermometers in California, so he relies on purchasing electrical components made in China and selling finished products to Chinese dairy farms.
“We've seen a lot of effort into making our customers more comfortable,” said Thomas of GLA Agricultural Electronics, founded in 1969.
The past three days have been a roller coaster for Thomas as both countries were pushed onto the brink of each other. On Sunday, he raced to ship the unit to China's biggest customer, before a 34% tariff on American goods took effect.
After Trump announced additional tariffs, Chinese customers sought more in anticipation of a response from Beijing. Thomas took the scramble and began to put together more products, but China beat him to punch and said it once again raised the tariff rate to 84%, effectively ending its chance to retain customers for now.
“We were being taken away from the Chinese market,” he said. “At 84%, we're completely locked out.”
