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Us China Trade War Overview
A trade war occurs when countries impose trade barriers, leading to escalating import costs. The US-China trade war began in 2018, when the US accused China of unfair practices, leading to retaliatory tariffs. An agreement in 2020 aimed to restore stability but tensions resumed as the pandemic shifted focus.
In January 2025, the US-China trade war gained momentum with Donald Trump’s return as US President. Trump reinstated heightened tariffs, leading to intensified global economic tensions. This has impacted supply chains, reduced spending, and increased the Consumer Price Index.
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Monitoring Trade Developments
We’re now seeing a recalibration in tone between Washington and Beijing, although it’s far from a settled matter. With China agreeing to lift prior retaliatory steps against the US, both sides appear to be moving closer to diffusing longer-standing trade tensions. However, any progress here rests on uncertain ground. A potential backslide remains entirely possible—tariffs, once shelved, could reappear swiftly if negotiations fail to proceed as expected. There’s little room for complacency.
The slight uptick in the Australian dollar, now trading near 0.6375 against its US counterpart, may reflect modest optimism surrounding easing tensions. That said, the rise is marginal, hardly enough to signal a clear trend. Currency traders should note how even minor developments in such macro-level matters can shift sentiment across pairs sensitive to global trade dynamics, like AUD/USD.
The historical backdrop frames the present context rather well. When initial tariff escalations began in 2018, the cost of moving goods across borders surged, companies scrambled to adjust logistics, and trade balances swung sharply. The 2020 agreement brought some relief, although its effects were undercut by the arrival of pandemic-related priorities. Many measures were left in limbo.
Then came January 2025—Trump’s return to office introduced a new phase. He moved quickly to reinstate aggressive trade policies, many of which had previously stoked inflationary pressure. The knock-on effects went well beyond bilateral trade: global manufacturing schedules faced fresh disruptions, importers passed on costs, and consumer prices crept up steadily. The resulting inflation has already made an impact, as reflected in upward moves in the CPI.
Over the next few weeks, we should be watching not only formal statements from the negotiating teams, but also how markets begin to price in these developments. For those operating in derivatives markets, volatility pricing on currency pairs and commodities exposed to cross-Pacific trade could shift in short order. This wouldn’t just affect directional bets—positioning around implied volatility, spread trades, and hedging strategies will also need to adjust.
In recent days, we’ve noticed implied volatility staying relatively contained, suggesting that the market is either skeptical of near-term escalations or simply waiting for firm headlines to react. That’s unlikely to hold if commentary from US trade officials or Chinese ministries begins steering towards confrontation again. Reassess positions accordingly.
Keep a close eye on freight indices, regional PMIs, and inventories. These offer forward-looking clues—not just on sentiment but on actual demand patterns, which ultimately lead price action. As tariffs move in and out of play, procurement timelines shift, FX hedging decisions change, and positioning in related equity and bond markets may catch traders off balance.
Unexpected headlines can appear in either direction. We’ve seen it before: markets settle into one story only for the opposite to emerge a few days later. Respond firmly, but not rashly. Watch volumes and flows during Asia-Pacific session openings—given the cross-border nature of these developments, activity will pick up first there.
And finally, while it’s tempting to infer longer-term resolution from a single agreement or press release, we’ve learned that such episodes rarely stick unless both sides maintain their course.
