The United States and China have entered a new phase of their ongoing trade war, with tariffs escalating and economic tensions rising. However, experts warn that the conflict may expand beyond China, potentially dragging Mexico and Canada into a three-way trade war that could significantly damage the US economy.
Escalating US-China Trade Dispute
The current conflict began when the US imposed a 10% tariff on all Chinese goods, prompting China to retaliate with tariffs of 10% to 15% on select American products, including:
- Coal, crude oil, and liquefied natural gas
- Agricultural machinery
- Large-displacement cars
In a more aggressive move, China has also blacklisted two major US companies, Illumina and PVH Group (owner of Calvin Klein and Tommy Hilfiger), limiting their ability to operate in the Chinese market.
Economic Risks for the US
The US’s tariff strategy could lead to higher prices for American consumers on a wide range of products, including:
- Electronics, clothing, and toys
- Raw materials like rubber, plastic, and chemicals
Higher costs may also hurt American businesses, potentially leading to job losses and supply chain disruptions. Morgan Stanley economists predict that if further tariffs are imposed, China could retaliate with even harsher trade restrictions, worsening the economic outlook.
Three-Way Trade War: The Bigger Threat
Beyond the US-China conflict, experts warn of a wider trade war involving Mexico and Canada. Citibank economists predict that:
- The US economy could shrink by 0.8% this year and 1.1% next year
- China’s economy would be impacted less, despite facing heavy tariffs
- Mexico and Canada could suffer greater economic losses than the US
