By Tom Fowdy
The United States and China yesterday (May 13) agreed to de-escalate trade tensions and massively reduce tariffs that had been imposed on one another in Donald Trump's tit for tat trade war. For 90 days, the two economic powers will reduce tariffs by around 150%, with US tariffs on Chinese goods standing at 30% and Chinese tariffs on US goods at 10%. Naturally, Donald Trump proclaimed the agreement, best described as a ceasefire, as a massive win, and markets responded positively accordingly.
While this truce massively de-escalates trade tensions, it doesn't do a whole lot other than that and otherwise serves as a symbolic prelude to longer and more protracted trade talks, wherein the results are uncertain. Why so? First, this new 30% across-the-board tariff is still substantially worse than the first trade war status quo that Trump imposed in his first term, which Biden did not challenge.
After his trade war ended, there were still up to US$200 billion of Chinese goods that were not targeted, largely minor and cheaper goods. Now, all Chinese imports face a 30% across-the-board fee, which is substantially steeper than the 10% Trump has imposed on other countries across the world. While the President will of course be open to negotiating it down, given the huge geopolitical stakes and the domestic political attachment Trump has placed on China, the price of concessions required from Beijing will be substantially high. Even for friendly countries, the administration has signalled that removing the 10% levy will not be easy.
The White House, after all, is looking for unilateral benefits to flow in favour of the United States and to champion jobs at home above all, having crafted a simplistic narrative of global trade being a zero-sum game, which is now ripping off America. So, what would China have to do to circumnavigate such narratives? The US would be looking at substantial market access increases, changes to China's economic structure, and massive import orders in sectors such as agriculture. While the US makes these broad demands, they openly contradict the investment and business climate that is being cultivated back home for Chinese enterprises, where opportunistic McCarthyist bans in the name of "national security" or "human rights" are used to systematically blocklist Chinese goods and services from the domestic market.
Trump is more ambivalent on some of these things and is prepared to use some of them, such as the sale of TikTok, as leverage for trade talks. Still, one should assume America holds the cards, which is one of the administration's errors. They assume that all nations will automatically capitulate to Trump's demands, desperate and dependent on the US market, but it isn't so simple as this. China, after all, has the largest consumer market on the planet in terms of its base size equated with its lucrativeness. While China has not reached the same level of national wealth as the USA yet, its entire middle class is bigger than the entire population of America.
Second, China is the largest exporting country in the world, and almost all countries bar a few conduct more trade with China than the United States, who even with Trump's protectionism, cannot possibly replicate China's success and model, and there is no guarantee as such that Trump's methods will be economically beneficial. Therefore, while China's leadership leans towards seeking global economic stability, and thus cultivating a productive relationship with the United States, they have over the past few years focused on strategically hedging beyond the USA, and looking beyond the American market. This is why its leadership has been keen to negotiate and de-escalate, but not necessarily capitulate. They seek to manage the economic fallout and risks, but are not chasing after benefits, and deem the US will, at this stage, not change its strategic posture towards them, even in the more optimistic scenarios. Beijing, simply put, does not believe in a US-centric version of the world anymore, and recognises the scale of its own leverage in trade talks with the White House.
In this case, it remains to be seen how this 90-day period of talks will progress, if it at all. We can discern that both sides do not want to return to extreme tariffs, even Trump himself, for all his bluster, but we should be sceptical of just how much they are in a rush to secure a bigger, more comprehensive deal. I'm all for it, but I'm also on the fence as to what can be realistically achieved.
The views do not necessarily reflect those of DotDotNews.
Read more articles by Tom Fowdy:
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