Sino Strategies: China's Influence & its Implications for the U.S.

Summary

• Trump imposed a 10% tariff increase on Chinese imports, continuing his push to reduce U.S. reliance on China. In response, China retaliated with tariffs on U.S. energy and automotive imports and launched an antitrust probe into Google.
• As a result of the U.S.-China trade war, businesses face higher costs and supply chain shifts, while consumers bear rising prices. Policymakers may need to work more closely with allies and businesses to navigate ongoing trade tensions.

A Tale of Trump & Tariffs

Another chapter has been added to the trade war between the United States and People’s Republic of China. On February 1st, less than two weeks after returning to the Oval Office, President Trump announced a 10% increase of tariffs on China, contributing to the longstanding tariff-based economic relationship between the two global powers. This move is not unexpected from Trump, as the President sought to eliminate the U.S.’s dependence on China prior to his return. 

The trade war began during Trump’s first term, when he imposed a 20% tariff on solar panels, a key Chinese export to the U.S., and tariffs on the import of steel and aluminum in 2018. Since then, the Trump and Biden administrations have continued to contribute to the tariffs, with President Biden even increasing tariffs to 100% on electric vehicles, 50% on solar cells and 25% on electric vehicle batteries, critical minerals, steel, and aluminum before departing from the White House. 

China’s Revenge Tariffs

Xi Jinping and the CCP seem to be well-prepared for Trump’s new tariffs. Indeed, after Trump imposed the 10% increase in levies against China, China announced its own tariffs on select American imports — 15% on coal and liquefied natural gas products, and a 10% tariff on crude oil, agricultural machinery and large-engine cars imported from the U.S. — as well as an antitrust investigation into Google. Not only does this announcement arrive against the backdrop of the economic history between the U.S. and China, but China’s tariffs on the U.S. were also announced after the 30-day pause in U.S. tariffs on Canada and Mexico. In other words, China had time to watch and learn from Canada and Mexico and their responses to Trump’s tariffs. 

As the competition for “global supremacy” continues between China and the U.S. with Presidents Xi and Trump at the helm, respectively, the trade war is unlikely to cool off in the near future. The U.S. and its allies will likely continue to put economic pressure on the People’s Republic, and Xi Jinping and his allies will likely continue to respond with export controls, corporate probes, and other retaliatory measures.

Implications for the U.S.

1. U.S. Policy Implications

China’s tariffs indicate Xi Jinping’s willingness to continue to engage in a tariff competition. U.S. foreign policy makers will have to more meaningfully consider what China’s competitive response will be to American economic foreign policy. To this end, American policymakers might consider collaborating more closely with U.S. allies and American businesses to achieve their economic foreign policy goals. 

2. U.S. Business Implications

Thus far, the U.S.-China trade war has been an economic headwind for American businesses.  In particular, it has led to higher costs for manufacturing companies and financial difficulties for farmers. The tariffs have also urged U.S. companies to shift supply chains away from China, with its unstable economy, and towards other countries in the region, to their benefit. In the months and years ahead, American businesses should likely continue to shift operations away from China and towards other countries with developing industrial footprints in the region.

3. U.S. Consumer Implications

Researchers have found that the trade war has also had a negative impact on American consumption. U.S. companies have transferred the costs of the tariffs over to consumers in the form of higher prices for certain commodity items. This will likely continue under the Trump administration as more tariffs are levied against key U.S. trade partners like China.