NEW YORK (AP) — For months, bubbling trade tensions between China and the U.S. appeared to be calming, with words like “thaw” and “armistice” being traded for warnings of an economic “war.”
Now hostilities appear to be at full boil again.
A series of tit-for-tat moves this week by the two superpowers has thrust trade hostilities back into the global spotlight, roiling markets and raising alarm bells about what might happen next.
“Let’s poke the bear again,” economist Aleksandar Tomic, an associate professor at Boston College, said of the renewed sparring. “Let’s stir the hornet’s nest.”
A look at the state of play in the US-China trade dispute:
Signs of escalation of the trade war in the markets
Tensions between China and the US transcend any presidency or political party. But Donald Trump’s return to the White House has brought a new level of resentment. A slew of tariffs were introduced, raised and lowered in the first half of the year, prompting retaliatory measures from Chinese leader Xi Jinping. But recently there have been several months of relative calm.
That truce showed signs of deterioration this week, however, when China announced strict new restrictions on exports of rare earth minerals crucial to high-tech products. Trump, in turn, threatened an additional 100% tax on Chinese imports as of November 1 and export controls on American software. Both sides also bombarded each other’s ships with new port fees.
Whether public moves by Washington and Beijing are intended to promote private talks between the two sides is unknown. But they roiled stock markets, with Friday delivering the S&P 500’s worst day since April and adding a new dose of uncertainty about the future.
“Either this is it, the so-called tariff truce is over and both sides will escalate quickly, or these are negotiating talks ahead of the Xi-Trump talks,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in Cincinnati, Ohio.
Competition for advantage, with exports as a bargaining chip
With so much unknown about possible behind-the-scenes negotiations between the two nations, it is difficult to gauge who could have the upper hand.
But China may sense an opening as Trump is challenged by a government shutdown and the fallout from the ongoing trade war.
U.S. soybean farmers, long dependent on Chinese sales, are now being passed over for exports from Brazil, Argentina and elsewhere. American investors have enjoyed watching markets driven higher by excitement about artificial intelligence, but China dominates the world in the rare earth metals that are key to technology hardware. American consumers expecting an endless supply of cheap goods rolling off Chinese conveyor belts are bracing for higher prices.
“It becomes a question of who can replace the supply chains faster. And at least for now, I think China is winning,” Tomic said. “I don’t know what the cycle of a soybean is, but I bet you can grow a soybean faster than you can build a toy factory.”
Are Tariff Threats Empty or a Negotiating Strategy?
Trump has suggested a deal is still possible.
He has regularly made threats that turned out to be empty and used as part of a negotiating strategy. For now, Trump has not formally canceled a planned meeting with Xi later this month on the sidelines of the Asia-Pacific Economic Cooperation summit, although he said nothing was certain.
“I don’t know if we’re going to get it,” he said in the Oval Office on Friday. “I’ll be there anyway, so I guess we might have it.”
Chandler said it may seem like a sudden, dramatic outburst between the U.S. and China, but it’s actually more of the same from two sides locked in a bitter, long-running feud.
“It’s a bit like a divorce: the woman and the man accuse each other of things that look more complicated from the outside,” Chandler said. “This kind of story doesn’t have a good guy. We want to have a good guy and a bad guy. But these are just two big countries both looking for national advantage.”
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