The US-China trade conflict: what has happened, and what could happen next?

Imports and Exports | | MIC Customs Solutions |

Businesses around the world will be keeping close tabs on the ongoing trade dispute between the US and China, as the escalation or resolution of the conflict could have a profound global impact.

The presidency of Donald Trump has been a fraught period for those involved in international trade. After years of cross-party consensus on the value of progressive trade liberalization, the election of the controversial Republican has coincided with a sudden resurgence of protection policies, with potential global implications.

Having pulled the US out of the Trans-Pacific Partnership as one of his first acts as president, Mr Trump has continued to take a hard line against trade agreements and conventions that he does not believe to be in the best interests of the US, resulting in a protracted renegotiation of the North American Free Trade Agreement and continued pledges to reduce the US trade deficit by any means necessary.

However, it is the recent trade conflict that President Trump has stoked with China that could potentially have the greatest worldwide impact. Over the last few weeks, the often strained relationship between the world's two largest economies has deteriorated to the point where many are now fearing a full-scale trade war; although this outcome could yet be avoided, the dispute is likely to be an ongoing source of tension for some time to come.

How did we get here?

The history of Donald Trump's aggressive rhetoric on the topics of free trade and competition with China pre-dates his relatively recent political aspirations; by contrast, the timeline of the current conflict has been much more accelerated, which is why it has had such a shocking impact on global markets.

April 2017 - President Trump orders a probe into imports of foreign steel from China and other countries, citing concerns that they could pose a threat to national security

August 2017 - A second investigation is launched, specifically targeting perceived unfair Chinese trade practices and alleged thefts of US intellectual property

January 2018 - The US introduces a 30 per cent tariff on imported solar panels - most of which come from China - and further levies on large residential washing machines, prompting a rebuke from the Chinese government

March 8th 2018 - President Trump announces controversial tariffs on steel and aluminum imports of 25 per cent and ten per cent, respectively. Several nations are promised exemptions from the levies, but China is excluded from this

April 1st 2018 - China retaliates by imposing tariffs of up to 25 per cent on 128 US import products worth around $3 billion (€2.46 billion), including fruits, nuts, wine, steel pipes, recycled aluminum and pork

April 3rd 2018 - The US hits back with a 25 per cent tax on around 1,300 Chinese goods from the aerospace, machinery and medical industries, valued at around $50 billion altogether

April 4th 2018 - China announces its own new set of tariffs covering 106 products also worth around $50 billion, including soybeans, automobiles, chemicals, some types of aircraft, corn and other agricultural goods

April 5th 2018 - President Trump confirms that another $100 billion package of additional tariffs is being considered, as China files a complaint with the World Trade Organization about the US steel and aluminum levies

Will the situation be resolved, or escalate further?

This series of escalating tit-for-tat threats and countermeasures has sent global markets into turmoil in recent weeks, with many fearing that the eruption of a trade war would severely harm the global economic recovery. Indeed, International Monetary Fund managing director Christine Lagarde said the global consensus on multilateral free trade is "in danger of being torn apart" by the protectionist sentiments embodied by the conflict.

Despite this, it is worth noting that the US-China tariff plans are yet to come into force, with talks between the countries ongoing. Treasury secretary Steven Mnuchin and US trade representative Robert Lighthizer will be travelling to China in the near future in the hope of finding a mutually satisfactory resolution to the dispute, leading to renewed hope that the tariff threats will not ultimately be realized.

However, it is unlikely that the strained relationship between the US and China will be healed easily, with the European Union now also looking to join the WTO dispute talks on the US steel and aluminum tariffs. Given that President Trump's strident approach to foreign policy, and his statement on Twitter that "trade wars are good, and easy to win", it remains possible that this situation will once again escalate - meaning traders around the world will be watching the progress of any future talks between the US and China with interest and trepidation.