Just when we thought that the trade war between the world’s two largest economies was dying down, considering that its leaders Donald Trump and Xi Jinping met at the G20 summit at the end of June and agreed to a ceasefire; that ceasefire has not happened, and in fact the situation has escalated.
Trump, via a series of tweets said he plans to impose a 10% tariff on $ 300 billion of Chinese imports from September onwards, and could raise tariffs further if the Chinese President fails to move quickly and strike a trade deal. This statement marks an abrupt end to the temporary truce between the two nations. Let us recall that the US has already imposed tariffs of 25% on $ 250 billion worth of Chinese imports into the US.
This news didn’t go down very well with US stock markets, which took a beating. Oil prices plummeted 7%, with Brent Crude registering its biggest daily percentage drop since February 2016. These new tariffs may also force the Federal Reserve to cut interest rates again, to protect the US economy. On July 31st the Fed cut interest rates by a quarter percentage points, the first reduction since 2008.
In retaliation China said it would it would take countermeasures, and a spokesperson at the foreign ministry said that China does not want a trade war with the US, but was not afraid of fighting one. While this may have been a face saving comment, the fact is that the US imports much more goods from China, than China does from the US. Therefore, the US always has the upper hand when it comes to negotiations, and China, in effect, is left to the mercy of a man that is hell bent on putting them down.