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US-China climbdown in trade war – a welcome pause
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Context
Following a rapid escalation of the US-China trade war in early 2025, the two countries have announced a pause in hostilities after two days of negotiations in Geneva. While this move rolls back severe tariff increases made since April 2, it is not a trade deal, and significant trade barriers still remain.
Timeline and Trigger of Escalation
- February Tariffs Spark Conflict: The US imposed 10% tariffs on Chinese goods and 25% on Mexican and Canadian imports in February 2025, citing the fentanyl crisis as a key concern. China retaliated immediately with its own set of counter-tariffs.
- April 2 Reciprocal Tariff Escalation: By April 10, the situation escalated rapidly: the US raised tariffs to 145% on Chinese imports, while China retaliated with 125% tariffs on US goods, essentially approaching a de facto trade embargo.
- Economic Fallout Becomes Evident: The US economy contracted by 3% in Q1 2025, even before the worst effects of the tariff war played out. Both countries were heading toward economic destabilization and loss of investor confidence.
Nature of the Pause and Remaining Barriers
- Partial Rollback of Tariffs: As part of the de-escalation, both sides agreed to cut 115% of the tariff hikes, reducing their import duties on each other to 10% baseline tariffs. However, the US retains an additional 20% fentanyl-related tariff.
- Consumers and Producers Still Burdened: Despite the rollback, US consumers are still facing 30% tariffs on Chinese imports, which continue to strain household budgets and supply chains. Producers also face increased input costs.
- Not Yet a Comprehensive Deal: The current arrangement is not a trade agreement but merely a truce. It only undoes escalation post-April 2, with both sides acknowledging the risk posed to global economic stability.
Strategic and Economic Implications
- Trade Deficit and Strategic Concerns Persist: Trump’s broader rationale includes reversing the US trade deficit and reviving domestic manufacturing, beyond the fentanyl issue. These underlying goals remain unresolved.
- China’s Export-Driven Model Under Pressure: China, heavily reliant on exports and global supply chains, faces significant vulnerability during trade stand-offs, risking domestic economic and political instability.
- Global Supply Chains and Recession Risks: The near-trade embargo status disrupted global manufacturing and supply networks, with ripple effects on third countries and a looming recessionary threat for both economies.
Practice Question
Q. The recent pause in the US-China trade war reflects the precarious balance between geopolitical ambitions and economic interdependence. Critically analyse the implications of such conflicts on global trade architecture and India’s economic strategy.
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