The next chapter of financial disconnection USA and China It has now begun and its impact is expected to be felt throughout the globe.
Increasing his duties in China -and putting on the ice the imposition of corresponding duties on dozens of other countries -US President Donald Trump pushes the world’s two largest economies into an open -ended dispute with significant costs for both sides and with serious consequences on the global economy.
Total duties imposed on China during Donald Trump’s second term are now in 145%as announced yesterday (10.4.2025) by the White House. As a response China announced today Friday (11.4.2025) that it increases tariffs on American products to 125% and will come into force tomorrow.
Although the possibility of future review is left open the first signs of deceleration of bilateral trade flows – which reach the $ 582 billion– They are already visible.
US factories cancel orders while some Chinese manufacturers put employees on temporary license. At the same time, there has been a sharp decline in ship bookings for transport through the Pacific since some of the latest duties have begun. At the same time, US shares fell abruptly on Thursday as investors are trying to evaluate the consequences of these developments.
Although Trump estimates that any “pain” from US duties will be offset by long -term job profits and investment in the short term, JPMorgan Investment Bank said on Wednesday (9.4.2025) that it is ‘Very likely’ the American economy will shrink later this year. Since China’s accession to the World Trade Organization (WTO), 23 years ago, the US economy has incorporated China’s cheap production.
In 2024, China represented about 13% of total imports of goods to the US. It provided a huge variety of goods, from smartphones and games to industrial components. Entire businesses have been built around the ease of this access, design, marketing and distribution in the US production in China. Many businesses had begun to adapt to a reality of higher duties that began during Trump’s first term. However, if the new duties remain, they face the risk of access to Chinese production as a whole thing that will bring heavy changes For American consumers.
According to the Wall Street Journal, Americans, who have already been under pressure from prices by 24% in the last five years, could end up paying even more for a smaller variety of daily goods. On the other hand, for China, a comprehensive trade war with the US means it will be ruled out from the world’s largest consumer market, at a time when its economy is based on exports for its growth, trying to offset the downward trend of the real estate market and hypotonic consumer costs.
Dependency ratio
Despite the tension in the US -China relations in recent years, the economies of the two countries are closely linked. For more than 25 years, Americans have been spending much of their money by buying things in China.
The US was taking cheap products and China invested in the development of its infrastructure and rising its growth scale. But this relationship created enormous tensions, taking into account lost jobs in American manufacturing cities, while the trade deficit was constantly increasing. US exported $ 143.5 billion in goods to China in 2024while imports from China amounted to $ 438.9 billion.
The US president’s goal is to eliminate the trade deficit through duties once and for all, which, he says, will help attract more production back to the US, creating jobs and blocking the flow of US money to China. “At some point, I hope in the near future, China will realize that the days of US and other countries are no longer viable or acceptable,” Trump said on Wednesday (9.4.2025).
At the same time, he gave his allies and commercial partners a 90 -day suspension for ‘mutual’ duties announced on April 2, although a basic 10% duty on almost all imports will remain in force, making it clear that the central focus of its trade war, at least for the time being, is China.
So far, Beijing has responded to every round of US duties growth, increasing tariffs on US products and targeting US companies. Chinese officials have recently discussed with some of the country’s largest companies the possibility of deleting their shares from US stock markets as a way to limit companies’ exposure to dollars and growing geopolitical risks, the Wall Street Journal said.
China issued warnings on Wednesdays for citizens who are thinking of traveling or studying in the US, a sign that Beijing wants to put pressure on America’s tourism and education sectors. Tit-for-tat scalable actions have serious impacts.
Financial markets have been in turmoil in the last week, with strong fluctuations in shares, bonds and coins, due to successive duties.
Capital Economics economists have said their calculations show that exports to the US could be reduced more than half in the coming years, while Societe Generale analysts said China’s exports to the US “will be largely eliminated” from the latest surfers.
Commercial activity between the United States and China already shows signs of bending. According to the Sonar Container Atlas data platform, daily container bookings on the basic route between the two countries have fallen by 25% from the end of March compared to the same period last year. Container ships managers report that several US importers have temporarily suspended the missions from China, while others store their products in customs warehouses, expecting more clarity for the new duties before proceeding.
According to market sources, Amazon has canceled some of the stocks supplied by China, following the announcement of new duties.
The impact on the United States
The US economy that entered 2025 with a steady orbit, its commercial upheaval creates serious problems. Duties increase import prices by reducing the purchasing power of businesses and consumers. According to JPMorgan’s leading economist in the US, Michael Feroli, duties imposed by January are equivalent to “Tax burden of over $ 300 billionยป.
In the meantime, the uncertainty about future duties makes it difficult to plan businesses, burdening business investments. Increasing barriers to Chinese imports threaten to spoil the difficult progress to contain inflation in the US after the most recent peak in 2022. Although recent data show restrained inflationary pressures, one Possible new wave of prices due to duties, coupled with a slowdown in economic growth, could create a dangerous combination for the US Federal Bank (Fed).
Despite the positive image shown by the data on recruitment and development, the general climate is deteriorating. Research has recorded increased pessimism among consumers, with one of the key indicators of consumer confidence falling in March to the lowest level by 2022.
Economists say it will be difficult to eliminate the trade deficit with increasing financial sanctions for imports. Many products imported by the US from China, such as electronics, are difficult to replace inland or with suppliers in other countries, said Cristian Deritis, deputy chief economist at Moody’s. “The shift of this production requires time and energy and is accompanied by costs,” Deritis said.
According to economists, the pursuit of equilibrium of commercial deficit exclusively through punitive measures in imports may prove ineffective. As Cristian Deritis, Deputy Chief Economist at Moody’s explains, many of the products imported from China – such as electronics – are difficult to replace either domestic production or imports from other countries. “Transferring this production requires time, resources and implies significant costs,” he says.
Redesigning China’s economic model
China has difficulty finding new buyers for its products. Many countries have already been negatively affected by the plethora of Chinese imports and are reluctant to accept further products. At the same time, the accumulation of unsold goods in the saturated internal market may aggravate deflationary pressure on the Chinese economy.
However, as economists point out, the betting war on China is not only about the short -term financial performance, but also its economic model itself. Its growth was based on extensive investments in factories, infrastructure and real estate, and a strong export sector, a strategy that raised it in second place in the world economy.
Now, China is called upon to turn to reinforcement domestic consumptionas if it does not do so, its growth may remain stagnant. The review of China’s economy towards consumption entails the transfer of more resources to households and removal from factories.
In the long run, this will require large and costly reforms, such as strengthening the social security network and supporting local governments facing fiscal problems. According to analysts, China’s previous model of development, though impressively successful in recent decades, has reached its limits.
Frederic Neumann, HSBC’s head in Asia, stresses that the bank provides that the trade war will reduce China’s growth by 1.5 to 2 percentage points next year. However, if other countries are united with the US and impose restrictions on Chinese exports, China may be even more hit. The Chinese government aims to grow around 5% for 2025.
Goldman Sachs estimates that 10 to 20 million jobs in Chinese factories are focused on satisfying US consumer demand for home species, games, latest electronic devices and other imported products.