The accelerated tariff climbing is undoing a commercial relationship built over decades between the United States and China, endangering the fate of both powers and threatening to drag the global economy for a retraction.
The current dispute overcomes the clashes of former President Donald Trump’s first term. In 2018 and 2019, he raised rates on Chinese products over 14 months. Now the increases have occurred in a matter of days, with higher rates and covering a larger range of products.
On Wednesday (9), Trump responded to China’s decision to match the 50% rate-imposed as retaliation to a previous US tribute-with a new increase, raising the rate on Chinese imports to 125%.
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Despite the pressure, China kept the posture. The country raised the rates on US goods to 84% and reiterated, on Thursday (10), that it will “fight to the end”, in line with President Xi Jinping’s strategy to redefine the global order with Beijing in the center instead of Washington.
“We are approaching a monumental break,” said Orville Schell, director of the Asia Society’s US-China Relations Center in New York. “The fabric we have sewn carefully in recent decades is undoing.”
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USA and China: a troubled relationship
The relationship between the two countries was one of the main forces of the global economy in the 21st century. American companies benefited from production in Chinese factories, which helped contain consumer prices and widened the profits of large corporations.
China, in turn, has gained jobs and investments that took millions out of poverty. As Chinese consumer power grew, a profitable market for American brands has opened.
This balance was questioned with China’s advance as a global power and the growing US fear of being vulnerable to Chinese control over strategic inputs for the high technology industry.
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It is unclear which side will give in to first – or if there will be any consensus. But it is true that the interruption in the billions of dollars in bilateral trade, including goods that move through third countries, will have a severe impact on both economies and their business partners.
“You can’t model this,” said Steven Okun, CEO of Apac Advisors consultancy. “Will countries have to choose between the US and China?”
Economists predict that the impasse can lead the US to the recession. China, in turn, faces the prospect of forced divorce from its largest commercial partner – which consumes more than $ 400 billion in products a year – amid a real estate crisis and low consumer confidence.
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As a US and China are central to the world economy, the effects should be felt globally. The conflict intensifies while Trump imposes 10% rates on most US business partners, as well as imported car and aluminum taxes – measures that almost went unnoticed by the recent tariff wave.
Dan Wang, director of the China team at Eurasia Group, said Chinese companies are already looking beyond the US. China plans to export 6 million electric vehicles this year, almost none to the United States. According to her, there is a risk of global recession, but the impact tends to be greater in the US.
Three months ago, the international monetary fund designed that the US economy would perform higher than other major economies.
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Now many analysts are at risk of recession in the US. After the imposition of Trump generalized tariffs, predictions point to more inflation, unemployment and slowdown.
“I believe the recession has begun and that the economy will make it significantly worse in the second quarter,” said Carl Weinberg, chief economist at the High Frequency Economics, before Trump turns back in part of China-related tariffs.
US impact
The effects of tariffs should be felt throughout the American economy.
According to Wendong Zhang, assistant professor of applied economy and public policy at Cornell University, 73% of smartphones, 78% of notebooks, 87% of video game consoles and 77% of toys sold in the US come from China.
China still tries to recover from the real estate crisis, which impacted the entire economy. Local governments face difficulties in financing social programs, while financial institutions deal with high levels of indebtedness. Unemployment is high and young people find it difficult to find qualified jobs.
On Thursday, Goldman Sachs reduced its growth projection to China, despite the expectation of robust stimuli by Beijing. The estimate was cut from 4.5% to 4% – high rate for American standards, but modest for China.
The country has been betting on exporting manufactured to compensate for weaknesses in other sectors. But US tariffs should reduce demand and business partners already show caution with increasing the presence of Chinese products in their markets.
For small businesses in both countries, the sudden break in the business relationship is devastating. This is the case of John K. Thomas, owner of a company in California that manufactures electronic animal thermometers, with Chinese components and customers in China.
“China became my second largest market has been crucial for business survival in the last 15 years,” said Thomas of Gla Agricultural Electronics, founded in 1969.
In the last three days, he has lived a roller coaster. On Sunday, he ran to board goods to the main Chinese client before the entry into force of 34% tariffs on American products.
After a new announcement of Tarump fares, the Chinese customer requested more units, anticipating retaliation. Thomas tried to accelerate production, but China reacted before and again increased the tariffs to 84%, ending the possibility of keeping the customer.
“We were about to be excluded from the Chinese market,” he said. “With 84%, we are completely out.”
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