US-China Trade War: A New Chapter Unfolds - my article in daily RZECZPOSPOLITA

The economic battleground between the United States and China is set for a dramatic shift as President-elect Donald Trump's administration prepares to reshape trade relations between the world's two largest economies. Recent developments in Washington signal a potentially seismic change in US-China trade dynamics, with implications that could reverberate through global markets.

At the heart of this looming transformation is a pivotal recommendation from the US-China Economic and Security Review Commission (USCC) that could inflict hundreds of billions in losses on Chinese trade with the United States. The commission's latest report advocates for stripping China of its Permanent Normal Trade Relations (PNTR) status – a cornerstone of Chinese economic growth over recent decades.

The PNTR Calculus

The PNTR status, granted by Congress in 2000 as China prepared to join the WTO, has been fundamental to Chinese access to US markets. It ensures that Chinese goods receive the same basic tariff treatment as most other US trading partners. However, the USCC's unprecedented call for its revocation stems from mounting concerns over intellectual property theft and market manipulation practices attributed to Beijing.

This isn't merely bureaucratic maneuvering. The commission's recommendation, if implemented by the incoming Trump administration, would enable Washington to impose substantial tariffs across a broad spectrum of Chinese imports, potentially reinstating annual reviews of Chinese trade practices – a mechanism that existed prior to PNTR approval.

De Minimis: The E-commerce Battlefield

Another significant proposal targets the de minimis exception for e-commerce products, which currently allows goods valued under $800 to enter the US with minimal regulatory oversight and zero tariffs. The USCC specifically highlights concerns about Chinese e-commerce giants like Shein and Temu exploiting this provision, allegedly at the expense of US jobs and regulatory compliance.

The Numbers Tell the Story

The stakes are particularly high given current trade volumes. In 2023, Chinese exports to the US reached $448 billion, second only to Mexico's $480 billion, while US exports to China amounted to just $147 billion. This resulted in an unprecedented US trade deficit of $301 billion – a figure projected to grow by 4.4% in the coming year.

Trump's campaign promise of 60% tariffs, combined with the USCC's recommendations, could dramatically reduce Chinese export volumes to the US. The impact would extend beyond mere trade figures, potentially triggering a cascade of business failures and unemployment in China's export sector.

Beyond "Decoupling"

The shift represents a departure from the Biden administration's more nuanced approach of "selective decoupling" – a strategy that sought to maintain US hegemony while allowing China to profit from consumer goods exports. The Trump camp's vision appears more absolute: strengthening American industrial might, even at the cost of disrupting global corporate interests and the concept of a unified world economy.

Economic Implications

For China, the consequences could be severe. Even companies resilient enough to maintain a presence in the US market would face sharp profitability declines. While redirecting exports to third countries remains possible, such transitions cannot occur overnight. The resulting corporate failures would impact both employment and government revenues in China.

However, economists caution that this is not a one-sided equation. Beijing possesses significant leverage to inflict reciprocal pain on the US economy. The question remains: will China accept these new terms of engagement, or are we witnessing the opening moves of a more profound economic confrontation?

The coming months will be crucial in determining whether these recommendations translate into policy, potentially reshaping not just bilateral trade relations but the entire architecture of global commerce. For businesses and investors on both sides of the Pacific, the message is clear: prepare for turbulence ahead.

By Robert Nogacki, Managing Partner at Skarbiec Law Firm, specializing in legal, tax, and strategic consulting for entrepreneurs