Countries that had previously managed to sit out the spat will be dragged into it.
The trade war which began with tit-for-tat tariffs between Washington and Beijing in 2018 has now been raging for nearly seven years. With the re-election of Donald Trump in America, it will intensify in 2025. But the trade war is also spreading geographically. The number of countries being dragged into spats over trade with China is increasing, posing difficult decisions for governments.
Mr Trump has proposed tariffs of 10% or 20% on imports from around the world. Those from China face an even steeper suggested duty of 60%. That makes the average American tariff already in place, at around 12%, look modest. Quintupling the tariff on Chinese goods would make a broad swathe of products too expensive for American buyers. Chinese exports to America amounted to around $500bn in 2023. That could drop by as much as 85% if the tariffs were implemented in full, according to one analysis.
But as well as affecting trade between the two superpowers, the commercial turmoil will spill over to the rest of the world in the year ahead. China’s policymakers are likely to permit—or engineer—a fall in the yuan to blunt the impact on its manufacturers. That will drive down the cost of Chinese goods all over the rest of the world. Countries that once preferred to sit out of the trade tussle are already being pulled into the fight. In 2025 they will feel even more pressure to respond with their own trade restrictions.
Chinese cars could be banned from American roads
Decisions by China’s government are also raising the stakes. Investment in property fell by 10.1% between January and September 2024, compared with the same period in 2023. The crisis in the property market, once one of China’s main engines of growth, has now been going on for more than three years.
In late September, Chinese stockmarkets began to surge, driven by hopes for more stimulative economic policy from Beijing. But so far, few policies that might revive consumer spending have been announced, and exports have been a more reliable source of recent economic growth.
Investment in manufacturing rose by 9.2% in the first nine months of the year, helping to offset the pain. The combination of a moribund economy at home, and an American market which is being closed off to Chinese producers, means that surge of investment is producing industrial goods destined for other overseas destinations.
Around the world, electric vehicles (EVs) have already emerged as one of the foremost sources of tension, and one that looks likely only to grow. Back in 2018, China exported around 1m cars, which played very little role in the early trade tussles. That figure surged to 5m in 2024, and China has emerged as the world’s largest car exporter, thanks in large part to its expertise in producing low-cost EVs.
Some countries have already raised steep walls against imports of Chinese cars. A proposal by America’s Department of Commerce to prohibit the use of Chinese software in cars would in effect ban Chinese cars from American roads. In August the Canadian government imposed 100% tariffs on Chinese-made evs. In Europe, the issue is still a matter of political discord. A proposal by the European Commission for tariffs of up to 45% on Chinese evs faced opposition from the governments of Germany and Hungary, though those of France, Italy and Poland supported the new levies. Germany’s car industry opposed the move, given the risk of retaliation from China, the industry’s largest foreign market.
But the tensions are rippling out beyond the rich world. Many middle-income countries are weighing the pros and cons of accepting cheap Chinese goods and Chinese investment on the one hand, and protecting their own domestic producers on the other. Brazil, Chile and Mexico raised tariffs on Chinese steel imports in April. Countries in South-East Asia are also being dragged into the fray. In July, Indonesia’s trade minister threatened tariffs of up to 200% in areas including ceramics, textiles and footwear. Malaysia’s government is reviewing its anti-dumping duties against Chinese steel.
For countries around the world, both rich and poor, the effects of the trade war will become more and more difficult to avoid, particularly if the incoming Trump administration raises an almighty tariff wall. Sitting out the conflict is no longer much of an option. ■
By Mike Bird, Asia business and finance editor, The Economist
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