A dizzying tariff escalation has unraveled a commercial relationship between the United States and China, forged for decades, endangering the fate of the two superpowers and threatening to drag the world economy.
The risky policy deployed by both countries has already exceeded the battles they fought during the first mandate of President Donald Trump. In 2018 and 2019, Trump raised tariffs to China for 14 months. For the most part, the most recent escalation has developed in a matter of days, with levies that are much larger and apply to a broader group of goods.
On Wednesday, Trump responded to China’s decision to match his 50 percent tax – a penalty for Beijing’s countermelted to an previous American tariff – with an additional tariff, raising the rate on Chinese imports at least 145 percent.
As much as Trump has pressed, China has refused to go back. The country has raised its tariffs on the products imported from the United States to 84 percent. On Thursday he promised “fighting until the end”, an approach consistent with the way Xi Jinping, the top leader of the country, has tried to redefine the world order, one in which Beijing, and not Washington, is in the center.
“We approach a monumental and disastrous breakdown,” said Orville Schell, director Arthur Ross at the United States-China Relations Center of the New York Asia Society. “The fabric that we have used so carefully during the last decades is tearing down.”
A relationship that shapes the world economy in the 21st century is in danger. For years, both parties benefited. The wide use of Chinese factories by US companies kept prices under control for US consumers and increased the profits of the largest companies in the country. China obtained jobs and investments that brought millions of families out of poverty. And as China’s purchasing power grew, a gigantic and lucrative market for US brands was opened.
This system has been tested by China’s emergence as a world power, and for the growing concern of the United States for having become vulnerable to China’s pressures about access to crucial components and materials for advanced technology and manufacturing.
It is not clear who will yield first, or if both parties can find points of agreement. One thing is true: the imminent interruption of merchandise flow worth thousands of dollars between China and the United States, as well as trade that often passes through other countries, will have a devastating impact on both economies and their commercial partners.
“This cannot be modeled,” said Steven Okun, executive director of Apac Advisors, a geopolitical consultant. “Will countries have to choose between the United States and China?”
Economists predict that the division could lead the American economy to the recession. At the same time, the Chinese economy faces the perspective of a painful divorce of its largest commercial partner, which buys goods worth more than 400,000 million dollars a year, while the country staggers due to a sinking of the real estate market and the low confidence of consumers.
Since the United States and China are fundamental for the world economy, the impact will have an impact everywhere. Its confrontation occurs when Trump has also imposed a 10 percent basic tariff on most of the United States commercial partners, and taxes on cars manufactured abroad and steel and aluminum imported, impediments to trade that have almost forgotten in the tariff whip of recent days.
Beijin took care that Trump changed the rules of world trade in his first mandate. He matched American tariffs with their own tariffs on imports from the United States. But Beijing quickly ran out of American products to penalize, because China bought very little from the United States. The two countries reached a truce in January 2020, an agreement that in Beijing was considered unfavorable for the Chinese part.
In last year’s election campaign, Trump seemed willing to go further. He talked about imposing 60 percent tariffs on Chinese imports. The majority of economists and investors gave importance to discourse considering it hyperbolic, an electoral promise that would be reduced before economic reality.
But it provided China a plenty of warning to devise countermeasures that inflict maximum economic pain to the United States. Until now, Beijing has responded to Trump with high tariffs and threatening reminders that could cut the supply of critical minerals.
The possibility that the conflict will distinguish even more to the two countries is greater than ever.
Dan Wang, director of the China team of Eurasia Group, said that some Chinese companies have already set their eyes beyond the United States. For example, China plans to export six million electric vehicles this year, almost none to the United States. He said that, although there is the possibility of a world recession, the risk is higher in the United States.
Three months ago, the International Monetary Fund offered its economic forecasts for next year: the US economy was in a better way than almost all others.
Now, many analysts see the possibility of a recession in the United States. After Trump imposed tariffs on almost all countries, analysts foresee greater inflation, more unemployment and slower growth in the United States.
“I think a recession has already begun and that the economy is going to deteriorate significantly in the second quarter,” said Carl Weinberg, chief economist of High Frequency Economics, before Trump turned back in some of the tariffs not directed to China.
The effect of tariffs will be felt throughout the American economy. Wendong Zhang, an attached professor of applied and political economy at Cornell University, said 73 percent of cell phones, 78 percent of laptops, 87 percent of video game consoles and 77 percent of the toys in the United States come from China.
China, on the other hand, is still recovering from a real estate crisis that has affected its entire economy. Local governments struggle to raise sufficient money to pay social benefits programs, while financial institutions are loaded with debts. Unemployment is high, and young people struggle to find promising jobs.
On Thursday, Goldman Sachs lowered expectations for the Chinese economy, even though he foresees a huge stimulus expense by Beijing. Reduced its growth prospects for this year from 4.5 percent to 4 percent, high growth for US standards, but a slow pace for China.
China has trusted the flow of products from factories to compensate for the weakness of the rest of its economy. But American tariffs will undermine the demand, and the other commercial partners of China, already suspicious of the avalanche of Chinese products, could be reluctant to assume the load.
For small businesses, both in China and the United States, the sudden rupture of the commercial association is devastating. It represents an existential threat to John K. Thomas, whose business in California of manufacturing electronic thermometers for animals depends on the purchase of electrical components manufactured in China and on the sale of the products finished to the Chinese dairy farms.
“That China has become my second largest customer base has been crucial for our business to continue in the last 15 years,” Thomas said about his company, Electronics Agricultural Gla, founded in 1969.
The last three days have been a Russian mountain for Thomas, since the two countries have pushed each other on the edge of the abyss. On Sunday, he hastened to send units to his biggest client in China before a 34 percent tariffs on US products on US products entered into force.
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After Trump announced additional tariffs, the Chinese client requested more, anticipating a pekin response. Thomas hastened to get more product, but China was advanced and said that the tariffs had risen to 84 percent, so that, for the moment, any possibility of retaining the customer was over.
“We were close to our prices took us out of the Chinese market,” he said. “With 84 percent, we are completely excluded.”