China Trade War: What’s Next?

The trade conflict between China and the U.S. is escalating—at least, it seems that way. We won’t really know until November 10th, when the temporary pause on tariff increases ends.

As the deadline looms, how are you feeling about it? On Friday, President Trump indicated that after Halloween, China could face 100% tariffs.

Yet, just a couple of days later, President Trump shifted his perspective. He seemed to adopt a more optimistic view, suggesting that both countries might navigate through this tension. He mentioned, on his platform, that “Respected President Xi Jinping had a bad day.” Suddenly, there was a sense of calm, and interestingly enough, the markets reacted positively on Monday.

But is this really okay? Honestly, the best that China and American multinational companies can hope for right now is to keep things as they are. Unless a significant step is taken to create more barriers separating the U.S. and Chinese markets, it feels like we’re heading towards a standstill—a bit like the world situation after World War II, when the major powers divided territories amongst themselves.

Currently, the Trump administration is pushing an “us or them” narrative. This strategy is forcing allies, particularly in Europe, into a tight spot. Europe isn’t likely to jump into big trade deals or let major Chinese investments flow in, especially since that would risk American jobs. If they do, they might face higher tariffs. For instance, they’re already dealing with 50% tariffs on steel and aluminum, and potential increases on auto tariffs loom ahead.

The trade situation is definitely heating up, so don’t underestimate it. Last week, China announced plans to impose fees on U.S. ships docking at its ports starting October 14th. This move seems like a direct response to the U.S. fees on Chinese vessels. How exactly China will find U.S.-flagged ships remains uncertain.

Right now, the U.S. is only producing a handful of large merchant vessels. In contrast, China churns out over 1,700 each year. Disturbingly, none of the containers for transporting goods like liquefied natural gas and soybeans currently come from American manufacturers—while a whopping 96% are Chinese-made. Although some vessels registered in the U.S. exist, they’re built abroad.

The situation escalated not just over the port fees, but because of reports that Beijing was ready to restrict rare earth exports, even after an earlier agreement to continue these shipments to the U.S.

Shortly after, China also announced limits on certain NVIDIA chips, a somewhat confusing move since they’ve been using rare earths to get the tech they need for AI development. This limitation could be seen as an attempt to crack down on black-market imports of chips they want to restrict.

Meanwhile, local manufacturers in China are quickly advancing, reverse-engineering imported NVIDIA technology, which complicates matters even more as it increases competition and market pressures.

In June, 100% tariffs were briefly placed on imports from China, representing the lowest rate since past trade measures. These tariffs were eased ahead of initial negotiations but are expected to rise again as we approach the new deadline in November.

China has suggested investing in the U.S. if certain security measures are relaxed. However, Trump is unlikely to agree to such terms; it would not be wise on his part. Past promises to him have quickly vanished once he’s no longer in office.

Initially, there were hopes from both China and global stakeholders that they could buy time with Trump, yet the new administration continued the previous tariffs and even increased them on certain imports. The geopolitical stakes are rising, and the trade tensions are far from settled.

For the last two decades, China has benefited from its participation in the World Trade Organization, as Western businesses often favored vague commitments from Chinese leaders. However, trust between the two nations is now at an all-time low, and repairing that will be a long process.

The U.S. now demands clearer reciprocity in trade. If expectations are not met, they are unlikely to engage without a solid trade-off.

American soybean exports might be facing a quasi-ban, which feels like an actual ban in practice.

Treasury Secretary Scott Bessent, known for his straightforward approach, plays a pivotal role in these trade negotiations. He understands the complexities of decision-making far better than many politicians, who often prefer to leave things vague.

As this trade war intensifies, crucial choices are on the horizon.

The U.S. strategy of “us or them” appears to be working, at least for now.

Mexico has been involved in the conversation regarding using its territory for distributing goods that face duties, essentially functioning as a staging area for products that could circumvent certain trade barriers.

The Dutch government, aiming for a steady semiconductor supply, took control of a Chinese-backed semiconductor firm. This action might be perceived by China as a seizure of their assets.

The European Union is contemplating steep customs duties on Chinese steel, which could be an effort to align more with U.S. aims to lessen Chinese tariffs, originally imposed by Trump.

While Chinese Foreign Minister Wang Yi was visiting Italy and Switzerland, he attempted to showcase economic opportunities, aimed at mitigating growing tensions from the U.S. His strategy seems to focus on appealing to those European nations that still have strong ties with China.

In conclusion, the U.S.-China trade war isn’t going anywhere fast. While things could get hotter in the coming years, the previous order allowing more free reign for American businesses seems to be dwindling. Trust between the two nations is fragile at best, and that’s not likely to change soon. U.S. companies are at a crossroads, and unless there are significant incentives to keep investment local, many will continue to look at Asia, particularly China, for growth. However, if they keep leaning too heavily on China, they might wake up years later facing new rivals that they’ve inadvertently helped to foster.