Long-term persistence of Trump's trade battles
The ongoing US-China trade war is showing no signs of abating, according to financial rating agency Scope Ratings. The agency has identified five key reasons that suggest the conflict is likely to escalate rather than end soon.
1. Market Encourages Risk-Taking
The resilience of US equity markets, with indices near record highs, reduces the political costs for President Trump to escalate trade tensions. Low financial market volatility and growing market complacency are normalizing tariffs, weakening traditional market checks on trade conflicts.
2. Resilient US Economy
The US economy continues to grow at a relatively robust pace compared to other advanced economies. Current tariffs, while higher than usual, are not yet severe enough to cause significant economic disruption or embargoes. Inflation effects from tariffs have also been slower and less pronounced than expected.
3. Increasing Customs Revenues
Higher tariffs generate substantial additional revenue for the US government, helping to address budget deficits and fund fiscal priorities. This financial incentive encourages maintaining or increasing tariffs despite economic complications.
4. Appeasement by Trading Partners
Some US trade partners have shown willingness to temporarily accept certain US trade demands or pauses in tariff escalation, which removes immediate external pressures on the US administration to reduce trade tensions permanently.
5. Geopolitical and Strategic Factors
Framing tariffs under national security rationales aligns with a broader US strategy to protect key supply chains and counter China’s influence. This politicization of trade reinforces persistent rivalry and motivates ongoing trade conflict rather than resolution.
The president's approval rating remains high among his party's voters, and the US equities performance, along with market complacency, allows Trump to take unpopular actions regarding trade. The widening gap between tariffs imposed by the US and those imposed by trading partners on the US as well as on one another has created a two-tier global trading system.
Customs revenues have increased significantly compared to monthly averages from last year, and most countries have shown relatively low levels of pushback to the US trade policy, with exceptions such as Canada and China. Republican Party concerns about major losses in 2026 mid-term elections have eased.
In conclusion, Scope Ratings views the combination of strong US economic fundamentals, market attitudes, fiscal incentives, partial foreign acquiescence, and geopolitics as driving forces that make a prolonged and escalating US-China trade war likely for the foreseeable future.
Policy-and-legislation: The framing of tariffs under national security rationales aligns with a broader US strategy, which is a part of the ongoing policy-and-legislation agenda to protect key supply chains and counter China’s influence.
Politics: The president's approval rating remains high among his party's voters, and the US equities performance, along with market complacency, allows Trump to take unpopular actions regarding trade, demonstrating the impact of politics on the trade war.
