A Trade War With No Winners

U.S. President-elect Donald Trump is set to ignite new trade wars with some other countries, including China. His announcement on social media on 25 November 2024 that he would impose additional tariffs on goods from China, Canada, and Mexico came as no surprise.

The Republican Party leader, elected in November last year following his victory in the U.S. presidential election, declared he would impose an additional 10 or 25 percent tariff on imports from these countries, pushing the global economy towards potential turmoil. Officially, the president-elect claims his goal is to curb the flow of drugs, particularly fentanyl, into the U.S. But is this the true motivation? One can only speculate.

What is clear is that Trump aims to bolster American manufacturing and compel companies like General Motors to produce goods within the U.S. rather than in Mexico. While this may shock some, it aligns with Trump’s long-standing protectionist policies, which seek to shield the U.S. economy from foreign competition, especially from China.

Longstanding protectionism

The trade war between the U.S. and China began in earnest in 2018 and has had a profound impact on both nations, their economies, and global trade. During his first term, Trump imposed higher tariffs on Chinese goods, sparking retaliatory measures from China side. Chinese tech companies like Huawei and TikTok were primary targets under the pretext of national security.

In response, China invested in Mexican companies to circumvent U.S. tariffs by manufacturing and shipping goods through Mexico. This shift has further heightened tensions, prompting Trump’s latest tariff threats designed to force Mexico to sever economic ties with China.

The global implications of these tariffs are significant. Higher import costs will likely drive U.S. consumers to spend more on buying domestically produced goods, making foreign products less competitive. This will harm exporting countries’ economies. Following Trump’s announcement, the U.S. dollar strengthened while the Mexican peso and Canadian dollar fell in value.

While the Phase One trade deal between the U.S. and China offered temporary relief, broader disputes over intellectual property, market access, and geopolitical rivalry remain unresolved. Despite the tensions, China and the U.S. continue to dominate the global economy and are each other’s major trade partners.

In 2022, Chinese exports to the U.S. were valued at approximately $450 billion, including electronics, machinery, textiles, and consumer goods. Meanwhile, U.S. exports to China amounted to $170 billion, consisting of agricultural products (e.g. soybeans, pork, cotton), high-tech goods (e.g. aircraft, semiconductor equipment), and energy resources (e.g. oil, natural gas).

The origins of Trump’s trade war can be traced to China’s rapid economic rise over the past three decades. China is on the fast track of development, and the U.S. remains the world’s largest economy. Many believe that China is on track to surpass the U.S. as the world’s largest economy, posing a threat to the U.S. dollar’s status as the global reserve currency. The emergence of the BRICS as a powerful economic bloc has further challenged the U.S.-led G7 alliance.

No winners

However, the trade war has spared no one. In the U.S., tariffs have raised costs for consumers and businesses, disrupted supply chains, and hindered growth in certain industries. Many American companies, including Apple and Nvidia, have faced challenges, such as increased production costs or restrictions on technology sales to Chinese firms.

China, too, has suffered economic setbacks. Major Chinese companies like Huawei, Tencent, and BYD have been directly impacted, though China has sought alternative markets and emphasised domestic consumption. China imposed tariffs on U.S. goods, particularly agricultural products like soybeans, pork, cotton, and industrial goods and chemicals. 

Globally, the trade war has reshaped trade patterns, benefitting some countries while disrupting established supply chains.

As if that was not enough, on 1 December 2024, Trump posted another threat on social media, targeting BRICS countries with a 100-percent tariff unless they abandoned plans for a BRICS currency that could rival the U.S. dollar.

Trump’s social media posts signal a decision to escalate his trade war, yet the geopolitical landscape has shifted. BRICS now includes 10 members, whose combined share of global GDP has surpassed that of the G7.

This trade war seems to have no winners. Due to the high tariffs, Chinese products will be less competitive in the U.S. market, and U.S. citizens cannot buy high-quality but low-priced Chinese products. Their spending will increase considerably, or they will be forced to buy locally produced goods they may not like. Inflation could rise, leaving American households stretched.

Globally, the consequences of a prolonged trade war are dire. Cooperation between the U.S. and China is essential to global stability. A continuation of this tense economic relations will only deepen economic divisions and lower living standards worldwide. The world stands to benefit more from collaboration than from conflict. 

Trump should know that cooperation will benefit the world, while a trade war may do the opposite. The world’s top superpower may have something to learn from the win-win relationship between China and African countries.

The author is Editor-in-Chief of African Times, Johannesburg, South Africa.