The escalating tensions between the United States and China have ushered in the prospect of a full-scale trade war, as President Donald Trump has issued threats to impose tariffs exceeding 100% on imports from China, with implementation set for April 9. In direct response, China has pledged to “fight to the end,” viewing the US actions as coercive, and has already begun to raise its own trade barriers against US goods. This brewing conflict raises questions about the broader implications for the global economy.
In terms of trade volume, the US and China engaged in business transactions amounting to approximately $585 billion in the previous year. The disparity between imports and exports is particularly striking, with the US importing $440 billion worth of Chinese goods while exporting only $145 billion to China. This trade imbalance has translated into a sizable trade deficit of $295 billion for the US in 2024, signifying around 1% of the nation’s overall economy. However, Trump has exaggerated this figure, stating it to be around $1 trillion.
Historically, the US has implemented significant tariffs on Chinese goods, beginning during Trump’s presidency and continuing under his successor, Joe Biden. These tariffs have effectively reduced the share of Chinese goods in total US imports from 21% in 2016 to 13% in the most recent year. While the US has diminished its dependence on China in trade over the last decade, some analysts suggest that Chinese exports are still reaching the US, albeit rerouted through Southeast Asian nations.
For instance, in 2018, the Trump administration levied a 30% tariff on Chinese solar panels, driving manufacturers to relocate assembly operations to countries like Malaysia, Thailand, and Vietnam, thus sidestepping the tariffs. The impending imposition of reciprocal tariffs on these nations is expected to increase US costs for various goods that originally come from China.
Examining the specifics of imports, the primary export from the US to China in 2024 was soybeans, which are predominantly used for China’s extensive pig farming industry. Other notable exports included pharmaceuticals and petroleum. Conversely, the US primarily imports electronics, computers, toys, and a significant quantity of batteries from China—essential components for electric vehicles.
This ongoing tariff situation has negatively impacted companies such as Apple, whose stock price has plummeted by 20% over the past month due to decreased market valuations as a result of US tariffs. The situation is exacerbated as a 20% tariff on imports from China is already in effect, with speculation that a potential increase to 100% would lead to a dramatic rise in prices for the American consumer.
The repercussions extend beyond mere tariffs; various methods exist for both countries to retaliate economically. China plays a pivotal role in refining essential industrial metals, including copper and lithium, and could impede the flow of these resources to the US. There have already been instances where China restricted materials such as germanium and gallium, integral to military technology, from reaching the US market.
On the US side, there is potential for further tightening of the technological blockade, initiated under Biden, aimed at preventing China from importing advanced microchips vital for high-tech applications. Additionally, Trump’s advisers have publicly suggested leveraging pressure on countries such as Cambodia and Vietnam to refrain from trading with China, contingent on their ability to export to the US.
With both the US and China collectively contributing to around 43% of the global economy, according to the International Monetary Fund, an all-out trade war that stifles growth, or even induces recession in either nation, would recklessly reverberate across the globe. Such an occurrence would likely decelerate global economic growth and deter investment, projecting a bleak future for many economies reliant on stable US-China trade relations.
Moreover, as the world’s leading manufacturing hub, China maintains a nearly $1 trillion goods surplus, producing goods at prices often below true costs due to state support and subsidies. This allows Chinese companies to consider “dumping” excess products abroad, which, while potentially advantageous for consumers in the short term, could threaten jobs and wages in other nations. Concerns have already been raised by bodies like UK Steel about the possibility of surplus Chinese steel flooding their markets, with dire consequences for local industries.
In conclusion, the ramifications of a deteriorating trade relationship between the US and China present a myriad of risks not just for the nations involved, but for the world economy as a whole. Most economists predict that the fallout from full-blown trade hostilities would be predominantly negative, with profound implications felt globally.