The recent international economic climate has shone the spotlight again on the US-China economic relationship. The centerpiece of this new economic order is the higher tariffs that the US has levied on all Chinese goods. This followed a suspension of broader past duty hikes in more countries. The US targets China for a much more open reduction in duty rates by hitting it with an eye-catching percentage on its exports to the US.
When the Tariff Change Is Justified
The US administration justifies this disparate treatment by referring to the higher level of Chinese retaliation against previous trade measures. The higher taxes are, they say, meant to offset what they deem a retaliatory tax from China on US goods. So, this recent US move is “partly a reaction to China’s trade practices/interventions but also about the very principles (e.g., reciprocity) of trade internationally from this vantage point.”
The Legacy of US-China Trade
For many years, the US-China Economic Relationship has been fundamental to global trade. China’s operating inside of the worldwide supply chain is why consumer goods are so prolific and has no doubt caused vast wealth creation in many nations. That stands in stark opposition to the now decades-old, established view that more trade with China was a good thing, both for the US and Chinese economies, ultimately benefiting multinational corporations. Linked to that was a belief that economic development in China would, in time, lead to social and perhaps political change within the country.
Changes In Economic and Strategic Concerns
However, the expected evolution of China into a consumer economy, provided with profound political reforms, never happened. On the other hand, China remained focused on traditional export-oriented manufacturing and expressed ambitions for more leadership in advanced technologies, namely through a series of policy programs. This line of policy has led to re-assessment, especially in parts of the world trading system. Tariffs on US imports from China from the then US administration was the first blow — fundamental change (de-globalization as a further development of the decoupling policy) — in the rules of the game hitherto used; economic war increased. While these measures have had some impact on the Chinese economy, they do not represent a transformation of the Chinese economic model. One should remember that China is still a manufacturing powerhouse, as demonstrated by its returns in EV and battery manufacturing.
Outlook and Global Impact
The changes to tariff levels also raise a number of questions about the future of not only US-China trade relationships but the global trading system as a whole. One of the main matters under evaluation is the potential for negotiations to resume between the two nations. In the future, one shall know how far China is prepared to bargain and how radical a restructuring of its export-driven economy is ready to undertake. However, it still raises questions about how China may respond and how far it may go in making significant concessions.
China’s economy is closely intertwined with its national objectives, which is an essential pillar for the survival of the Chinese political regime in its current form. Therefore, any change in its trade behaviors will have to be contingent on this reality. Also, the rationale for US trade policy should be considered. Tariffs are not merely seen as a bargaining chip but also as a device to spur local production and to promote autarky. If this view prevails to justify US trade action, it may influence China in terms of opportunities for serious negotiation. This seems to be leading to a more adversarial and rivalrous relationship between the two largest economies on Earth. Both countries, instead of emphasizing economic cooperation, may be oriented toward economic competition. This kind of development could dominate the global financial landscape of the future and, as such, would be disruptive to complex global trade relationships. China has voiced deep concerns and asked China and the US to go back to the mutual respect of trade after the latest US tariff hike. This is a key part of the economic equation that has the rest of the world watching the news as it happens
