#USChinaTensions US-China tensions are escalating into what could be the biggest trade war in history. The US has imposed significant tariff increases, starting with 25% duties on steel, aluminum, automobiles, and auto parts, followed by a universal 10% minimum tariff on all imports. China has retaliated with tariffs of up to 125% on US goods.

*Key Issues:*

- *Trade Imbalances*: The US argues that China's non-tariff barriers undermine American exports, while China sees US tariffs as protectionist measures.

- *Tariffs as a Bargaining Tool*: The US might be using tariffs to extract concessions from China, but this risks damaging economic and diplomatic relationships.

- *National Security*: The US is concerned about China's growing military capabilities and potential threats to US interests.

*Economic Impact:*

- *Increased Prices*: Tariffs will lead to higher prices for imported goods, potentially fueling inflation.

- *Uncertainty*: The unpredictability of future tariff levels and potential reactions from other countries is negatively affecting consumer and business confidence.

- *Global Economic Consequences*: The trade war could have substantial short- and medium-term economic effects on both rich and poor countries ¹.

*Potential Resolutions:*

- *Internal Pressures*: Declines in the US stock market and reduced investor confidence might generate internal pressure to de-escalate tensions.

- *Mediation Efforts*: The European Union could play a crucial role in mediating between the US and China to prevent further escalation.

The US-China Tension (UCT) index, which tracks newspaper articles discussing rising tensions, shows a close alignment with business and policy decision-makers' views. Fluctuations in the UCT index parallel discussions in corporate earnings calls and presidential rhetoric ².