As the set deadline for the suspension of heightened tariffs on China approaches this Tuesday, it remains uncertain whether it will be prolonged. Recent discussions between China and the U.S. were concluded with the anticipation from officials of both nations that the deadline would receive another 90-day extension. Yet, the ultimate decision lies in the hands of American President Donald Trump whose official declaration on the matter is still awaited. The uncertainty around the extension has left businesses across the globe in suspense as a decision to escalate import duties could potentially destabilize global economies.
Trump’s history of repeated adjustments to deadlines and rates of tariffs has further increased the concern around future plans for Tuesday. What the two powerful nations have planned for the approaching deadline has yet to be unveiled. If the deadline is extended, it would delay potential tariffs as high as 245%, a threat that had been previously levied in the negotiations with China. This proposed tariff hike is intended to counterbalance the immense and persistent U.S. trade deficit with China.
The U.S.’s deficit reached a 21-year low in July, owing largely to the looming threat of increased tariffs impacting Chinese exports. The United States often provides a public glimpse into the state of negotiations, whereas China usually holds back from any such announcements until decisive actions are taken. As we approach the week of the deadline, Beijing has remained silent on its intentions.
In a recent interview, U.S. Vice President JD Vance touched on the possibility of additional tariffs on China due to its increased reliance on Russian oil imports. Still, the final decisions by President Trump remain undisclosed. Imposing burdensome tariffs on Chinese exports into the U.S. would apply additional pressure on Beijing during a time when the country’s economy, one of the largest in the world, is still finding its feet following a prolonged slump in property markets.
Moreover, the lingering impacts of the COVID-19 pandemic have seen an increased dependence on irregular employment, also known as ‘gig work’, which adds another layer of complexity to the employment landscape. The introduction of higher import duties on small packages from China has further affected smaller factories by accelerating layoffs. Despite these challenges, the U.S. continues to rely heavily on several major imports from China.
These goods range from everyday household items and clothing to complex machinery and components such as wind turbines, key computer chips, batteries for electric vehicles, and the rare earth elements required to manufacture these products. Such reliance on Chinese imports provides China with significant bargaining power in the talks with Washington. Even with the possibility of higher tariffs, China can still present competitive pricing on many products.
Chinese leaders understand that the U.S. is only starting to grapple with the ramifications of price increases stemming from the tariff hikes. At the moment, a basic tariff of 10% is applied to imports from China, along with an additional 20% duty linked to the fentanyl issue. Some goods may be subject to even higher rates.
In contrast, U.S. exports heading to China face tariffs of approximately 30%. Prior to the announcement of the truce, Trump had threatened to impose import duties as high as 245% on Chinese goods. In response, China stated it would increase its tariff on American imports to 125%.
A potential trade war between the two most powerful economies around the globe could have far-reaching repercussions. Such implications could span from disrupting industrial supply chains to affecting commodity demand, such as copper and oil, and even instigating geopolitical tensions, as exemplified by the ongoing conflict in Ukraine.
President Trump, after a telephonic conversation with Chinese leader Xi Jinping, expressed his desire for a meeting later this year. This portrays a positive incentive towards reaching a trade agreement with Beijing. However, should the truce be broken, trade tensions could intensify, leading to an upward spiral in tariffs, further straining both economies and causing global markets to fluctuate.
Heightened trade tensions could lead to businesses becoming hesitant in committing to investments and hiring, potentially slowing economic recovery, while simultaneously causing inflation rates to soar.
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