Uncertainty Lingers Over Possible Extension of Trade Tariffs on China

The upcoming deadline of the 90-day pause on higher tariffs imposed on China, which is set to expire on Tuesday, has created uncertainties about its possible extension. Following the most recent discussions on China-U.S. trade, which took place last month, both Chinese and U.S. authorities expressed anticipation for another 90-day extension. However, the final decision rests with U.S. President Donald Trump, and thus far, there has been no official statement about his stance on either endorsing the extension or advancing with the increased tariffs.

The ripple of uncertainty has left businesses in a state of uncertainty, with a potential surge in import duties posing a substantial threat to the global markets. Trump’s history of revising deadlines and tariff rates only adds to this uncertainty, and the silence from both sides regarding their plans for Tuesday intensifies this suspense. Should the deadline for a trade agreement with China be extended, an escalation to tariffs upto 245%, as threatened before, can be avoided.

The increase in tariffs is primarily targeted at counteracting the substantial and rampant U.S trade deficit with China. This deficit sunk to a record-breaking 21-year low in July, as the potential sanction of higher tariffs began impacting Chinese exports. The U.S. government is known for providing hints about the state of its discussions, but China usually stays silent until significant decisions are concluded. In the face of the looming deadline this Tuesday, Beijing follows its usual approach and remains silent.

In a recent conversation, U.S. Vice President JD Vance mentioned Trump’s contemplation over issuing additional tariffs on China, largely due to its acquisition of Russian oil. However, Vance emphasised that, as of now, Trump has not made any firm commitments. An imposition of unaffordably high tariffs on China’s exports to the U.S. could wield considerable pressure on Beijing, especially now, when the world’s second largest economy is still trying to recover from an extended downfall in its property market.

In addition to the economic downturn, the Chinese economy also contends with the residual impact of the COVID-19 pandemic. Millions of people have been forced into tentative ‘gig work’, causing a trickle-down effect on the nation’s job market. Consequently, smaller factories have been affected by increased import taxes on small parcels from China, triggering an increase in layoffs.

Despite these negative impacts, the U.S. continues to depend on its imports from China, with an extensive array of goods that include household products, clothes, wind turbines, basic computer chips, and essential components for electric vehicle batteries. This reliance gives Beijing substantial bargaining power during their negotiations with Washington. Indeed, despite potential tariff increases, China continues to be a competitive supplier for a wide array of products.

Chinese leaders are also cognizant that the U.S. economy is just starting to experience the repercussions of enhanced prices resulting from increased tariffs. Currently, goods imported from China incur a standard 10% tariff, accrued with an additional 20% tariff associated with the fentanyl problem. There are some products, however, that are taxed at a higher margin.

In contrast, U.S. exports to China are subjected to an approximately 30% tariff. Prior to the nations agreeing to a ceasefire, Trump had warned of imposing import duties as high as 245% on Chinese products. In response, China had counter-threatened by stating that it could increase its tariffs on U.S. goods up to 125%.

The prospect of a trade war between the two dominant economies globally has extensive implications on the worldwide economy. It impacts industrial supply chains, stimulates fluctuations in demand for commodities like oil and copper, and stirs up complex geopolitical matters, such as the ongoing conflict in Ukraine.

After a recent telephonic conversation with Chinese leader Xi Jinping, Trump expressed his hope for an in-person meeting with Xi sometime later this year. This aspiration to engage with Beijing directly serves as motivation to negotiate a feasible agreement. However, should the negotiations fail to uphold their established truce, trade tensions might escalate, leading to an exponential surge in tariffs.

This could inflict more significant damage on both economies while inevitably shaking up global markets. The ensuing frictions could cause businesses to hold off on their investment plans and hiring, while also leading to an inflation surge.