The United States and China head to “monumental” division, putting the world economy on the brink
The marginalism demonstrated by the two countries has exceeded the battles launched during President Donald Trump’s first term. In 2018 and 2019, Trump raised tariffs on China within 14 months. The latest upgrades are mostly done within a few days, with greater taxes and a wider range of goods.
On Wednesday, Trump refuted China’s decision to fine it with Beijing’s countermeasures to earlier tariffs on the U.S. — an additional liability to raise the Chinese import tax rate to 125%.
China also refused to back down, as Trump pushed. China has increased its imports from the United States to 84%. It promised again on Thursday “fight to the end” a way with the country’s top leader Xi Jinping trying to redefine the global order – with Beijing, not Washington’s order.”
“We are approaching a huge train wreck breakup,” said Orville Schell, director of Arthur Ross at the Center for Relations of the Asian Social and American Center in New York. “The fabric we knit together so carefully over the past few decades is tearing.”
The relationship at risk is the relationship that shapes the global economy in the 21st century. Both sides have benefited over the years. U.S. companies use Chinese factories widely to provide prices to U.S. consumers and fund profits of the country’s largest companies. China has obtained jobs and investments, lifting millions of Chinese families out of poverty. As China’s consumption capacity increases, it opens up a huge and profitable market for American brands. This arrangement has been arisen by China’s emergence as a global power, and is increasingly concerned that it is vulnerable to pressure from China to obtain components and materials that are crucial to advanced technology and manufacturing. It is unclear who will blink first or whether the two sides can find common ground. To be sure: the flow of billions of dollars in goods between China and the United States and trade often through other countries will have a devastating impact on the economy and its trading partners.
“You can’t model this,” said Steven Okun, CEO of geopolitical consulting firm Apac Advisors. “Does the country have to choose between the United States and China?”
Economists predict that the gap may push the U.S. economy into recession. Meanwhile, the Chinese economy is facing the prospect of divorce from its largest trading partner, which buys more than $400 billion worth of goods each year as the country stands out from the collapse of the real estate market and delays consumer confidence.
Since the United States and China are at the heart of the global economy, the impact will reverberate anywhere. Their quarrel is because Trump also imposes a 10% basic tariff on most U.S. trading partners and taxes on foreign-made cars as well as imported steel and aluminum – a barrier to trade has been almost forgotten in tariff taxes in recent days.
Trump changed global trade rules during his first term, catching Beijing off guard. It matches U.S. tariffs with imports from the U.S. But Beijing quickly used up American goods to punish them because China bought very little from the United States. The two countries ceased to fight in January 2020, and Beijing believes that the agreement is not good for China.
During last year’s campaign, Trump seemed willing to go further. He talked about imposing tariffs on 60% of Chinese imports. Most economists and investors regard stump speeches as an exaggeration – a campaign promise that has been weakened in the face of economic reality.
However, it provides China with sufficient warnings to design countermeasures that will cause the greatest economic pain in the United States. So far, Beijing has responded to Trump with high tariffs and reminded it could kill the supply of critical minerals.
The conflict has greater potential to push the two countries further than ever before.
Dan Wang, director of Eurasia Group’s China team, said some Chinese companies have surpassed the United States. For example, China plans to export 6 million electric vehicles this year, with almost no exports to the United States. Despite the possibility of a global recession, the U.S. is more risky, she said.
Three months ago, the IMF provided its economic forecast for the coming year: The U.S. economy is better than almost every other economy.
Now, many forecasters see the possibility of a recession in the United States. After Trump imposed sting tariffs on nearly every country, analysts predict higher inflation, more unemployment and slower growth in the United States.
“I believe the recession has begun and the economy will deteriorate significantly in the second quarter,” said Carl Weinberg, chief economist at high frequency economics.
The impact of tariffs will be felt throughout the U.S. economy. Wendong Zhang, 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 toys are from China.
For its part, China is still exploring the property crisis that has touched its entire economy. Local governments are working to raise enough funds to pay for entitled rights plans, while financial institutions are full of debt. Unemployment is high and young people are struggling to find promising jobs.
Goldman Sachs on Thursday lowered expectations for the Chinese economy, although it expected Beijing to spend heavily on stimulus spending. It has lowered the growth outlook for this year from 4.5% to 4% – growing by U.S. standards, but slow for China.
China has been relying on a large amount of goods from Chinese factories to offset weaknesses in the rest of the economy. However, U.S. tariffs will reduce demand, and other Chinese trading partners (already alert to floods caused by Chinese goods) may not be willing to slack off.
For small businesses in China and the United States, the sudden breakdown of the transaction partnership is devastating. It poses an existential threat to John K. Thomas, John K.
“Making China the second largest customer base is crucial to our business sustainability,” said Thomas of his company GLA Agricultural Electronics.
Thomas has been Thomas’ roller coaster for the past three days as the two countries push each other to the edge. On Sunday, he campaigned to ship units to his largest customer in China, and then a 34% tariff on U.S. goods would take effect.
Chinese customers demand more after Trump announced additional tariffs and are looking forward to Beijing’s response. Thomas scrambled to bring together more products, but China beat him and said it raised the tariff rate to 84% again, actually ending the opportunity to keep customers now.
“We were almost priced from the Chinese market,” he said. “Actually, we were turned away from the market.”
This article originally appeared in The New York Times.
