Trump’s Tariff delay: A tactical pause in the US-China economic standoff

Trump’s Tariff delay: A tactical pause in the US-China economic standoff

By: Dr Avi Verma

President Trump’s 90-day reversal on worldwide tariffs, while maintaining a significant 125% levy on Chinese goods, has injected a temporary calm into volatile global markets. China’s response, scaling back its retaliatory tariffs to 84%, suggests a willingness to reciprocate, albeit cautiously. However, the fundamental question of what a full-scale US-China trade war would inflict on the global economy, particularly the intricate US-China and US-India economic relationship, demands closer examination.   

The intertwined US and China economies

In 2024, the US and China engaged in approximately $582.4 billion in goods trade. The US imported $438.9 billion from China, while its exports to China reached $143.5 billion, resulting in a substantial US trade deficit of $295.4 billion. While the US has aimed to reduce its reliance on direct Chinese imports, this is complicated by the rerouting of Chinese goods through Southeast Asian nations. The new tariffs on these intermediary countries will ultimately inflate the cost of goods for American consumers.   

Impact on the US economy

A full-blown trade war would likely trigger stagflation in the US, characterized by rising inflation and stagnant growth. Key sectors heavily reliant on Chinese imports, such as electronics, automotive, and retail, would face increased costs, which would inevitably be passed on to consumers.   

Impact on the Chinese economy

China, with its massive $1 trillion goods surplus, faces the risk of having to “dump” its excess production into global markets if access to the US is significantly curtailed. This could depress prices worldwide but would also harm producers in other nations.   

The delicate US-India economic relationship

The US and India have a growing, albeit complex, economic relationship. In 2024, total goods trade between the two nations was valued at $129.2 billion, with the US exporting $41.8 billion to India and importing $87.4 billion. India maintains a trade surplus with the US.   

India’s vulnerability and potential gains

While not directly in the line of fire, India’s economy is vulnerable due to its reliance on Chinese components, particularly in the electronics and pharmaceutical sectors. Increased tariffs could lead to costlier smartphones, laptops, and medicines.However, some sectors in India, such as IT and potentially agriculture, could benefit from companies seeking alternatives to China. The US has also identified India as a key partner in its “friendshoring” efforts to diversify supply chains away from China.   

Why the pause?

Trump’s decision to temporarily ease off on global tariffs, while maintaining pressure on China, likely stems from a combination of factors:

  • Market volatility: The sharp drop in global stock markets likely triggered concern.
  • Strategic maneuvering: The 90-day window could be a tactical move to gain leverage in future negotiations with China.
  • Domestic pressures: Concerns from US businesses and consumers about rising costs may have played a role.

The current situation represents a fragile truce. The long-term impact on the intricate web of US-China-India economic relations hinges on whether a more stable and mutually beneficial trade framework can be established within this temporary window.

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