Xi and Trump Exchange Congratulations, But Will Tariffs 2.0 Spark New Trade War?

Ever since Donald Trump's recent election victory, attention around the world has been centered on the future of U.S.-China relations. Chinese President Xi Jinping was among the first to congratulate him in person, seeking "peaceful coexistence" and cooperation between the two countries. But with Tariffs 2.0 Campaign promises-up to 60% tariffs on Chinese imports-the dark shadows of a restarting trade war loom over the world. With Trump's hardline stance on China, there is increased uncertainty over implications for the economy and the diplomatic front.

Key Takeaways

• Trump Victory Stokes Trade War Fears: Trump's re-election and his proposals for steep tariffs on Chinese goods could mark the renewal of U.S.-China trade tensions.

• Xi Jinping urges cooperation, saying in his congratulatory message: It is very important for both the U.S. and China to maintain stability and "peaceful coexistence."

• The Economic Consequences of Tariffs 2.0: New tariffs have now begun to flash a warning by analysts across the world's markets that might disrupt it-from manufacturing to technology, such sectors in both countries would be affected.

• Key Sectors Likely to Be Affected: Manufacturing, agriculture, and technology are likely to bear the brunt of any escalation in tariffs.

Xi Congratulatory Message; Cooperation Urged

Chinese President Xi Jinping congratulated Donald Trump for his victory in the U.S. presidential election of 2024. He was unusually diplomatic, stressing how imperative it is to achieve stable and constructive relations between the two economic superpowers. In what was seen as a new era for U.S.-China ties, he underlined mutual respect, coexistence, and responsible management of differences.

This message, however, has come out against the background of strained relations between the two nations. In the last three years, tensions between the United States and China have seesawed on conflicts involving trade, security, and economic practices. The latest comments by Xi advocate for open dialogue and reveal possibly China's intent to maintain economic stability in the face of potentially aggressive U.S. policies under the new Trump administration.

Background: U.S.-China Trade Tensions

The first U.S.-China trade war broke out in 2018, within Trump's last term, in which the United States slapped tariffs on a wide range of Chinese goods ranging from 7.5% to 25%. It was against what the U.S. termed unfair Chinese trade practices to cut down its trade deficit with China. China then retaliated with its own tariffs on imports from the United States. As each country responded to the other, the original set of policies that dictated the relationship between China and the United States in trade began to shift, placing extreme pressure on industries in both countries.

All that culminated last January in the signing of a "Phase One" trade deal, which lessened tensions for a time but did not remove tariffs and tackle the deeper economic rifts. In the process, broken supply chains and increased costs disrupted U.S. industries, from agriculture to electronics. For China, the tariffs hit revenues from exports, already strained by a slowing economy and domestic challenges. With Trump back in office, the specter of Tariffs 2.0 has fanned fears of a renewed trade conflict with perhaps greater stakes than ever.

Tariffs 2.0: The Likely Impact on the Economies of the U.S. and China

The concept of Tariffs 2.0, with rates proposed to be as high as 60%, is far more draconian than those imposed during the first term of Trump. These increased tariffs would hit almost all Chinese imports in an effort to make the U.S. less dependent on Chinese goods and also to spur more domestic manufacturing. However, economists say high tariffs like this could have a spillover effect into both economies and extend into the general world market.

• Inflationary Pressure: Higher tariffs would likely raise the prices of goods in the U.S. economy and add to inflation. The effects would most likely be felt in consumer electronics, clothing, and other imported goods. This can reduce consumer purchasing power, hence limiting economic growth.

• Supply Chain Disruptions: The likely outcome of tariffs would be remarkable disruption to international supply chains, in which firms are forced to find suppliers other than from China. The reshaping of the supply chains would be expensive, especially for those industries reliant on China for raw materials and production.

• The pressure on Chinese exports comes at a time when a heavy tariff on exports could make economic recovery particularly difficult for China, especially for electronics and manufacturing. And given the current economic challenges that China faces, which include a property sector downturn and high local government debt, it may strike harder than the impact of the last trade war.

• World Economic Slowdown: A broad-based trade war between the two biggest economies may have worldwide consequences, where slower growth in both economies would hurt markets and industries worldwide.

Tariffs 2.0 for Key Industries in U.S.-China

With the imposition of Tariffs 2.0, key sectors in both the United States and China will see important changes. Here's a way new tariff policies could affect certain industries:

• Technology: This is one of the most affected sectors in both countries. The tech industry relies on supply chains across the world. American technology giants such as Apple hugely depend on Chinese manufacturing. The new levies could force these companies to absorb higher costs or pass it on to consumers. On the other hand, China's technology exports will be hit hard-particularly if tariffs also reach high-tech components.

• Manufacturing: Although Trump wants to bring back most of the manufacturing to the U.S., it would take time to effect such a transition. In the near term, higher tariffs applied to imported materials would increase the cost to U.S. manufacturers and thus generally undermine competitiveness. China, on its part, will suffer a reduction in its manufacturing export, which could further induce factory closures and lay-offs.

• Agriculture: Throughout his first term, Trump put tariffs on Chinese products, to which China responded by placing tariffs on US farm products. To that end, Tariffs 2.0 could follow a similar storyline whereby China slaps tariffs on US soybeans, pork, and other major US exports, hurting US farmers and pushing China to find other suppliers.

• Automotive: Higher duties have increased the cost of production for U.S. automakers who rely on Chinese-made auto parts. Similarly, China's domestic automobile industry is likely to reduce demand for U.S.-made automobiles further increasing competition in the automobile market.

Conclusion

Every time President Xi extends an olive branch in a bid to return to diplomacy, there almost seems to be a specter of Tariffs 2.0 hanging over the fragile balance reached between the U.S. and China. The threat of a new trade war has left the two biggest economies of the world-and global markets-on edge. Xi's call for "peaceful coexistence" reflects China's hope to avoid a repeat of past tensions, while Trump's proposed tariffs indicate a continued hardline stance.

Should Tariffs 2.0 kick in, industries from technology to agriculture will be directly hit on both sides of the U.S.-China divide. The ripples could reach into the broader global economy: inflation, supply chain snarls, and possible growth slowdowns in markets around the world. The world is watching the Trump presidency for what this reincarnated presidency will bring: cooperation or conflict in the next chapter of the U.S.-China relationship.