President-elect Trump's stance on tariffs is triggering preparations for a potential escalation of the trade war, potentially eclipsing the 2018 conflict. This anticipated confrontation is already impacting US-China trade dynamics and global markets.
Early signs of the potential trade war are evident in surging US port cargo volumes, driven by anticipation of new import taxes. The Port of Los Angeles, a major gateway for Chinese goods, saw a 25% increase in cargo handling in October, followed by further gains in November and December. Trump's threats of tariffs ranging from 10-20% generally and up to 60% on Chinese goods are fueling this surge. Diplomatic efforts are also underway, with Canadian Prime Minister Justin Trudeau and senior ministers meeting with Trump to discuss potential tariffs on Canadian imports.
Congressional actions are further adding to the escalating tension. Discussions to remove China's "permanent normal trade relations" (PNTR) status are underway. This move, while largely symbolic, signals a potential further decoupling of US-China economic ties, highlighting the shift in the relationship. Experts warn that this action could lead to more substantial tariffs in the future.
The Trump administration has emphasized intentions to swiftly address tariffs and economic issues, with a focus on reshoring US jobs. However, the implementation of substantial tariffs, like a 60% levy on a broad range of Chinese imports, will likely require a phased approach.
These escalating trade tensions have ramifications beyond direct US-China trade. Concerns are also mounting about potential retaliatory measures by China. Already, Chinese export controls on 28 U.S. companies and the placement of 10 companies on an "unreliable entities list" signal a potentially multi-faceted response that could include trade diversion and currency manipulation. The potential for trade tensions to ripple through global markets and damage traditional trade alliances cannot be discounted.
The potential for this trade war to affect traditional allies, particularly Mexico, is notable. Mexico, functioning as a major intermediary for Chinese goods, could be caught in the middle. This could potentially lead to renegotiations of existing trade agreements and new bilateral deals, potentially restructuring the North American trade landscape. China's own strategy for avoiding US tariffs, by shifting manufacturing to other countries, is contributing to the complexity of the situation.
Moreover, U.S. investment in China is under increased scrutiny. Legislation requiring notification for investment in sensitive technologies is emerging, and the executive branch is implementing stricter regulations on outbound investment. This is reflected in decreased venture capital funding into China.
The evolving trade tensions also extend beyond simple tariffs. New export controls beyond existing restrictions on AI chips are likely to be imposed, possibly encompassing a wider range of technologies. Concerns remain about inflation and the potential for a direct price impact from new tariffs on consumers. The Federal Reserve has adjusted its inflationary outlook for 2025, demonstrating the sensitivity of the situation. Ultimately, the scale and nature of Chinese retaliation, the resilience of global markets, and the potential for a resolution remain uncertain.
