US: China's manufacturing power worries the US - Commerzbank

The US government has once again backtracked and rescinded the counter-tariffs it only introduced the day before yesterday. What remains now is a 10% tariff on all imports from all countries, with the exception of Canada and Mexico (USMCA-compliant imports remain duty-free), and the automotive and steel/aluminium sectors, which remain subject to a 25% tariff. In addition, China now stands pretty much alone with 145% in addition to what was already in place before Trump's second presidency, Commerzbank's FX analyst Volkmar Baur notes.

No lasting trade peace in sight

"The fundamental problem remains: geopolitically, the US and China are competing against each other, and in this context, economic security takes precedence over economic cooperation for both countries. Both countries will therefore continue to work on making their economies and, in particular, their strategically important supply chains independent of the other country and try to gain a technological advantage. As a result, there will tend to be more rather than fewer sanctions and trade restrictions."

"Four developments in particular remain a thorn in the side of the US. First, China's industrial production (more precisely: manufacturing output) is now larger than that of the next nine countries combined. China's share of global manufacturing output was 35.4 percent in 2020, compared with just 11.8 percent for the US."

"All in all, it is likely to be difficult for the US and China to find a common denominator. China will not want to be dictated to by the US on what its industrial policy should look like or how it should rebuild its growth model. Just as the US would not want someone else to tell them what to do. A temporary agreement seems possible. But without a solution to the above-mentioned problems, this would be a temporary solution at best."