Geopolitics and Markets Review – 17th June 2024

China and America Trading Blows

Contents

1. Introduction

2. Trade War Returns

3. Why Now?

4. China’s Response

5. Impact On Global Trade

6. What’s Next?

7. Concluding Remarks

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Bitesize Edition

• When China joined the World Trade Organisation in 2001, trade between China and the US skyrocketed. Globalisation was thriving and the trend wasn’t in raising tariffs but dismantling them. In the 23 years since, both have realised as they head towards geopolitical competition and sometimes geopolitical conflict, that relying too heavily on the other puts them in a vulnerable position.

• The Americans especially recognised this in 2018, with the Trump tariffs on solar panels and washing machines. This started the biggest increase in tariffs since Smoot-Hawley in the 1930s! China has responded with tariffs of its own on agricultural products, fish products, and wood products, which hurt U.S. farmers. Since then, the trade war has continued to escalate between the two.

• The US is also worried that China has been stealing technology and providing massive stimulus to Chinese companies to gain global market share, especially in industries that will be key technological industries in the future, such as electric vehicles, the clean energy transition, and semiconductors. In fact, Biden placed export controls on semiconductors in 2022 to attempt to slow China’s technological advance.

• America is also aware of the loss of its own manufacturing sector and the jobs within it. As we see a fractured geopolitical world emerging before our eyes, a certain level of self-sufficiency is being prioritised. This involves reshoring and nearshoring key supply chains and industries.

• What does this latest batch of tariffs imposed by the US involve, and where is this complex trade relationship between the US and China heading? Find out more below.

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Introduction

The biggest geopolitical rivalry in the world today is that between the United States and China. In May, the storybook gained a new chapter when the Biden administration imposed a range of tariffs on the import of Chinese goods. What tariffs did the US impose, why now, and how will this affect global trade and the economics of the world?

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Trade War Returns

At the APEC Summit in San Francisco at the end of 2023, the U.S. and China agreed to pull back from the geopolitical brink and enact a truce in superpower competition. China has its real estate bubble and the bursting of said bubble to manage, and Biden looks to have a tough election ahead of him. With more obvious methods of geopolitical competition being placed on the sideline, the main field of play will now see more sneaky strategies enacted. After all, geopolitics, especially today, rarely stands still for long. The one aspect we saw reignited recently is the US-China trade war.

The U.S. continues to aim towards restoring key industries and rivalling the rise of China in key technological industries that will be vital to the future of our world. The Yuan is kept artificially lower valued against other currencies to make Chinese exports cheaper. The U.S. wants to limit China from flooding domestic US markets with key cheap exports and so has imposed the following tariffs on imports from China to the United States: