Truce fizzles as U.S.-China trade tensions return to full boil

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NEW YORK – For months, simmering trade tensions between China and the United States appeared to have cooled to a boil, with words like “thaw” and “truce” replaced by warnings of economic “war.”

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Now hostilities appear to be returning in full force.

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A series of tit-for-tat moves by the two superpowers this week have thrust the trade feud back into the global spotlight, roiling markets and raising anxiety about what might come next.

“Let's poke the bear one more time,” economist Aleksandar Tomic, associate dean of Boston College, said of the resumption of sparring. “Let's stir up the hornet's nest.”

Let's take a look at the situation in the trade standoff between the US and China:

Signs of an escalating trade war roil markets

Tensions between China and the United States transcend any presidency or political party. But Donald Trump's return to the White House has brought a new level of rancor. A series of tariffs were introduced, raised and reduced in the first half of the year, prompting retaliatory measures from Chinese leader Xi Jinping. However, just recently there have been several months of relative calm.

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But that truce began to falter this week as China announced strict new restrictions on the export of rare earth minerals, which are critical to high-tech products. Trump, in turn, threatened an additional 100% tax on Chinese imports by November 1 and export controls on US software. Both sides also imposed new port taxes on each other's ships.

It is unknown whether public actions by Washington and Beijing are aimed at promoting private negotiations between the two sides. But they roiled stock markets, and Friday brought S&P 500: worst day since April and a new dose of uncertainty about what will happen next.

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“Either the so-called tariff truce is over and both sides are about to quickly escalate, or these are talks ahead of the talks between Xi and Trump,” said Mark Chandler, chief market strategist at Bannockburn Capital Markets in Cincinnati, Ohio.

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Fighting for profit using exports as a bargaining chip

With so much unknown about possible behind-the-scenes negotiations between the two countries, it is difficult to assess who might have the upper hand.

But China may sense an opening as Trump is challenged by the government shutdown and fallout from the ongoing trade war.

American soybean farmers, who have long relied on sales from China, are now losing ground to exports from Brazil, Argentina and other countries. U.S. investors are excited to watch markets soar on the artificial intelligence frenzy, but China dominates the world in mining rare earth minerals that are key to technological equipment. American consumers, who have come to expect an endless supply of cheap goods rolling off Chinese assembly lines, are bracing for higher prices.

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“The question becomes who can replace supply chains faster. And, at least for now, I think China is winning on this issue,” Tomic said. “I don’t know what the soybean cycle is, but I bet you can grow soybeans faster than you can build a toy factory.”

Are tariff threats empty or just a negotiating strategy?

Trump suggested a deal was still possible.

He often made empty threats as part of a negotiating strategy. For now, Trump has not officially canceled a meeting with Xi Jinping planned for later this month on the sidelines of the Asia-Pacific Economic Cooperation summit, although he said nothing was certain.

“I don’t know if we’ll get there,” he said in the Oval Office on Friday. “I'll be there anyway, so I guess we can have it.”

Chandler said it may seem like a sudden and dramatic explosion between the U.S. and China, but it's actually the same thing, with the two sides locked in a bitter, long-running feud.

“It's like a divorce: the wife and husband blame each other for things that on the outside look more complicated,” Chandler said. “In these stories there is no good guy. We want to have a good guy and a villain. But these are just two big countries, both seeking national advantage.”

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