On Tuesday, US President Joe Biden announced a series of enormous tariffs worth 18 billion dollars on Chinese products, including electric vehicles, solar equipment, and batteries. In justifying these measures that he'd previously opposed,

Biden argued that the Chinese government had cheated by pouring money into Chinese companies, which then dump cheap products onto the market, hurting competitors who play by the rules.

A day later, the CCP vowed to take resolute measures in retaliation, and while we don't yet know what the CCP have in mind, it's clear that the US-China trade war is heating up.

So in this video, we thought we'd take a look at the driving forces behind the trade war, why Biden has changed his mind, and how this could all end.

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So let's start by taking a look at the tariffs themselves.

Aside from the 50% tariff on semiconductors, which comes into effect next year, the tariffs basically come in two phases. There are some that come into effect immediately, and others that are now due to come into effect in 2026, presumably because Biden is trying to minimise market disruption by giving supply chains a bit of time to adjust.

It's not just that divide though. The tariffs can also be split into two sets.

The first set applies to so-called strategically sensitive imports, stuff like critical minerals, semiconductors, or syringes, which are important for stuff like high-tech manufacturing or medical practice.

The second set applies to imports related to the green transition, i.e. things like batteries, solar panels, and electric vehicles, which have just been hit with an enormous 100% tariff, meaning that anyone importing a Chinese EV will also have to pay the full price of that EV in customs duties.

So why is Biden doing this? Well, as we see it, Biden's policies have political, economic, and security rationale. Or at least Biden thinks they do.

Politically, tariffs are a good way of signalling to the American electorate that he's tough on

China, and it makes it more difficult for Trump to present himself as the anti-China candidate in the upcoming election, as he did so successfully against Hillary Clinton in 2016.

It also puts pressure on the EU, which is currently deciding whether or not to impose its own tariffs on Chinese EVs, and who generally import more of this stuff than the US does anyway.

Economically, Biden is hoping that by protecting American manufacturing from Chinese competition, it will bring well-paid manufacturing jobs back to the US.

And he's also probably hoping that the tariffs on green transition imports will help America capture market share in various green industries, which are due to grow as the energy transition accelerates in the coming years.

Finally, Biden also hopes that these tariffs will better guarantee America's security, which is the main motivation behind the tariffs on strategically sensitive imports.

These are generally items that the US imports from China, but American politicians don't like the idea of being even partly dependent on China for anything important. Both because it gives the CCP some sort of implicit leverage, and because it would make things more difficult for the US if the CCP cut off imports in the event of a full-blown conflict.

So, will these tariffs actually work and achieve these goals?

Well, politically, it's probably a savvy move, given that most Americans don't like China and love the idea of reshoring American industry. Although we should say that Trump has since tried to one-up Biden by promising a 200% tariff on Chinese EVs.

But when it comes to the actual economic impact, it's harder to say.

It seems plausible that these measures will help reshore American manufacturing, but whether they'll actually have a positive impact on the American economy overall is a more difficult question to answer. As Biden himself noted a few years ago, tariffs will mean higher prices for American consumers, at least in the short term, and China's retaliatory action could also hurt the American economy in places.

So, there's sort of a prisoner's dilemma at play here. While it would probably be optimal in the aggregate for both China and America to pursue more liberal trade policies, i.e. reduce trade barriers and tone down their industrial policies, the worst outcome from America's perspective is one where it pursues a liberal trade policy and China pursues a protectionist one, which allows China to undercut American industry and exacerbate America's strategic dependencies, and vice versa. This means that both countries defensively end up pursuing protectionist policies, even though it's probably worse than if they both pursued more liberal ones.

Finally, when it comes to security, it seems plausible that these measures will reduce

America's dependence on China, but there are at least two caveats worth mentioning here.

Firstly, there's some evidence that Chinese companies are finding ways around these sanctions by diverting their exports through third countries, including, most notably, Mexico.

This is one of the reasons that for all of the talk of de-globalisation, the conventional measure of globalisation, namely the ratio between the total value of all international trade and global GDP, hasn't really declined at all over the past few years, suggesting that not much is really changing. The second, and perhaps more important caveat worth mentioning, is that while tariffs might improve American security by reducing its trade dependencies, they also simultaneously impair American security by making a US-China conflict more likely, because trade dependencies are a great safeguard against war. This is because when two countries' economies are greatly interlinked, war becomes economically disastrous, which disincentivises further escalation. When two economies are totally decoupled, however, they feel more confident about a full-on conflict, which then becomes more likely.

And this isn't a new idea, either. In a book titled The Fallacies of Protection, for instance, French political economist Frédéric Bastiat wrote that a nation isolates itself looking forward to the possibility of war, but it's not this very act of isolating itself the beginning of war. What makes Bastiat's words so worrying is the fact that they were published in 1909, only a few years before the outbreak of WWI. At the time, Bastiat was writing about the rising tide of protectionism among great European powers, especially Germany and Britain, at the end of a period known as the First Era of Globalisation, or the Long Peace, which runs from the final defeat of Napoleon and the Congress of Vienna in 1815 to WWI. During this time, the global trade to GDP ratio went from essentially zero to a high of 35% in 1913, a level that wouldn't return to again until the 1970s. Much like today, globalisation brought enormous prosperity, but it also engendered a certain anxiety in certain European countries about their newfound economic dependence on their neighbours. Britain was worried about its dependence on the European mainland for food, France was worried about its dependency on

Germany for coal and iron ore, and Germany was worried about its dependence on British-controlled maritime routes for imports of stuff like fertilisers. These anxieties inspired a rise in protectionism, which only stoked further distrust, and ultimately ended in war.

Now, we're obviously still, hopefully, a long way away from a US-China war, and we should be wary of drawing too many parallels from the 1800s, but global geopolitics does look worryingly similar to where it was in the early 1900s.

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