Global trade tensions have hit high levels again as the specter of another trade war looms over international commerce. With significant shifts expected under U.S. policies toward China, business leaders and economists alike are concerned about what this means for trade dynamics.
Six years after former President Donald Trump ignited the initial trade conflict with China, he is once again preparing to enter the political arena, pledging to reignite tariffs on Chinese imports. If past patterns repeat, such actions could ignite retaliatory measures from China, leading to turbulent seas for global trade.
The scenario is complicated by the fact China maintains a significant trade surplus with the U.S., making any direct counter-offensive potentially subdued. Past developments have demonstrated this, yet analysts suggest China has various potent tools at its disposal to counter U.S. economic aggression. Wang Wen, executive dean of Renmin University’s Chongyang Institute for Financial Studies, states, "Simple trade wars and reciprocal countermeasures cannot adequately address future China-U.S. differences." This indicates the potential severity of yet another round of economic conflict.
One of China's most damaging options could be to significantly reduce its holdings of U.S. Treasuries. Currently, the country holds roughly $734 billion of these investments. An aggressive sell-off could result in higher U.S. bond yields and destabilization across global financial markets. Since 2017, China has already reduced its treasury holdings, demonstrating its willingness to alter its financial strategies based on global pressures.
Economists believe China's currency, the yuan, could also be weakened as part of its response to any returns of U.S. tariffs. Historical data from past trade tensions shows the yuan depreciated significantly to mitigate the impact of tariffs on exports. A weaker yuan might again bolster China’s trading position, though it risks alienation with its trading partners due to the imbalances it could create.
China has also engaged recently in restricting exports of key minerals used predominantly in technology and electric vehicles - gallium and germanium were among the first commodities targeted for export limitations. The aim? To gain leverage as the U.S. strengthens its restrictions on technological exports to China. By placing curbs on these materials, Beijing looks to push back against U.S. policy moves and maintain its dominant role as the leading producer of numerous raw materials.
On the corporate side, China has expanded its strategies to potentially target U.S. firms operating within its borders. Since the beginning of the first trade war, regulations have been flipped to establish "unreliable entity" listings for companies deemed hostile to Chinese interests. This could have considerable ramifications for American companies reliant on China for revenue.
Yet it's not just direct action against the U.S. or American firms where China is focusing its energy; it’s also about alliances. The Chinese government has been working on fostering relationships with nations historically allied with the U.S. One strategic step involves enhancing relationships across Eurasia, positioning Beijing as favorable against the perceived reckless policies from Washington.
Meanwhile, on the U.S. side, the current political climate is far from conducive to free trade. Trump's election doubles down on the return of protectionism, revisiting tariffs he once deployed to shield domestic production and jobs. His strategic positioning appears geared toward fortifying the U.S. economy against foreign competition, particularly from China.
The World Trade Organization (WTO) continues to struggle with weakening as member countries become increasingly disillusioned with the framework. Both Democrat and Republican U.S. administrations have consistently undermined the foundations of the WTO, which American leadership originally helped establish. A growing belief reflects the view the WTO is out of alignment with U.S. interests, leading to increasing tensions among member states.
Concerns from New Zealand on the broader trade ecosystem are also present. Trade Minister Todd McClay is pushing for rapid trade agreements to secure new markets, which some argue fail to acknowledge the systemic issues plaguing the global trade system. Kelsey from the University of Auckland points out, "The primary problem is not lack of markets, but rather firms’ export capability, weak innovation, and over-reliance on low-value-added commodities." This feedback underlines the necessity for substantive discussions around the failing neoliberal trade system and the troubles facing smaller economies.
With Trump’s potential leadership looming once more, louder discussions centering around effective strategies to counteract the looming trade battles could be imminent. The growing fear remains, what will the next chapter of global trade look like as responses from China begin to materialize?
Overall, the stakes have never been higher. With trade routes poised to shift and geopolitical alliances on the line, business leaders across the globe are preparing for the inevitable fallout of renewed economic hostilities. The question is no longer if, but how severe the impacts will be as tensions boil over and new trade strategies emerge.
