Why Trade War Act II Will Likely Be Milder

The trade war was one of the defining themes in international trade last year, along with the COVID-19 pandemic. After former President Donald Trump took an aggressive stance towards China’s trade practices, both nations battled each other with tariffs and non-tariff restrictions that heavily affected the international trade climate. While the main battleground was certainly the trade between the US and China, the US and the European Union (EU) had several disputes as well.

Now with President Joe Biden in office, many are becoming hopeful that the second act of the trade war will be much milder. While this may be possible since President Biden has been more cooperative, there are still various obstacles in the way.

The Dispute Between the US and China Will Continue

Even in 2021, the trade policies will likely continue to put pressure on US-Sino relations. Most tariffs will remain in place, and talks won’t get any easier. Besides tariffs, President Biden may also try to restrict Chinese investments in the US and other countries.

China, in return, will increase its efforts to build relations with its neighbors and lower trade costs through its Belt and Road Initiative projects. Also, both the US and China may try to become more independent by decoupling supply chains.

With two leading global powers competing for the pole position, the relationship between the US and China is unlikely to get better any time soon. This may put pressure on other nations, Asia in particular, and force them to pick sides. In fact, it has already affected the Association of Southeast Asian Nations (ASEAN), with some members choosing China and others wanting to strengthen ties with the US.

More Cooperation Between Western Allies

On the other hand, what may improve are the relationships between western nations. During his campaign, President Biden pledged to “work with our closest allies” and that tariffs on steel and aluminum may be reduced. This is important since the cooperation of western nations is essential in dealing with China. In principle, most western countries agree on the WTO’s international trade framework, and convincing other nations to stick to those rules will need a united front, which is why President Biden is putting great efforts into rebuilding these relationships.

Thus, the global trade climate will likely get smoother in 2021. Still, challenges will remain, especially in regards to the relationship between the West and China. That will likely remain a significant issue for decades to come, meaning businesses must brace themselves and strategize accordingly.

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