The cooling trade war
It is becoming increasingly clear that Trump is all about money and about negotiating and cutting deals. There are no ideological concerns, or no emotions involved, it is all about what is best for the U.S. from a financial perspective. China and the U.S. suddenly announced a truce in their trade war after talks in Geneva that will roll back the bulk of tariffs and other countermeasures.
The U.S. is dropping the extra tariffs it imposed on China this year to 30% from 145%, while China is cutting them to 10% from 125%. Tariffs imposed before April 2, including those dating back to Trump’s first term, and other restrictions, such as the U.S. measures to end low-value package tariff exemptions, known as the “de minimis” rule, appear to remain.
The U.S. has agreed to adjust or remove three executive orders, which collectively put 115% tariffs on imports from China. Washington agreed to drop its so-called “Liberation Day” tariffs from 34% to 10% for 90 days, and remove all tariffs imposed during the tit-for-tat escalation that followed.
China has matched the de-escalation, removing all but 10% of the tariffs imposed since April 2, leaving the current rate at 10%. However, that leaves China still facing a 30% tariff once duties imposed before April 2 are counted, including the two rounds of fentanyl tariffs imposed in February and March.
Chinese products ranging from electric vehicles, steel and aluminum will also still face separate tariffs imposed over the past several years. A trade war truce agreed in Geneva will see the US cut its tariff rate from 145% to 30% and China from 125% to 10%.
China also committed to removing non-tariff countermeasures imposed against the U.S. since April 2, although it remains unclear how some of these measures will be walked back. As part of its retaliation in April, China added rare earths to its controlled export list, opened an anti-dumping probe into chemical firm DuPont’s China business and blacklisted some U.S. defense and tech firms. The wording of the agreement suggests those firms will be removed from the list, which barred trade and investment with China and the anti-dumping probe shelved.
The statement only said countermeasures imposed after April 2 will be removed, which would therefore not include a dozen companies blacklisted in March, and the anti-dumping investigation into Google announced in February. In the case of rare earths, because China’s decision applied to all countries, it is unclear whether it will count as a U.S.-specific countermeasure under the agreement.
Trump will inevitably claim the temporary truce in the U.S.-China trade war as a victory, Stocks were up and bond yields were higher after the U.S. treasury secretary Scott Bessent’s early morning press conference in Geneva, where he has been holding talks with China.
At the same time, with 30% tariffs remaining on Chinese exports to the US, the bigger picture remains of two great economic powers pulling apart. The U.S. did not mention the artificially weak yuan in the trace agreement and the language was subtle. It is still a step forward to calm the trading war. Trump has realized that an intensified trade conflict with China will have economic consequences domestically and is therefore increasingly interested in finding a solution. The situation in China is the same with growing domestic financial pressure due to tariffs. The economies are intertwined and need each other
At the same time, the U.S. and China’s relationship is complex, and China should still be regarded as an enemy due to a number of factors, including dictatorship, lack of religious freedom, economic competition, military buildup, and concerns about human rights. China should be regarded as the new Soviet Union, but it is not as the U.S. is still too depended on China economically.
Apart from tariffs, there are other major hurdles in the relationship between the two countries such as trade imbalances, intellectual property theft, China’s rapid military build-up, including advancements in technology like artificial intelligence and hypersonic missiles. There are also disagreements over territories like the South China Sea and Taiwan, as well as human rights issues.
Trump is well aware that China cannot be trusted, but at this point, he needs a temporary win and agreement. The U.S. cannot be too harsh with China as the two countries have managed to create a deep interdependency. Trump will keep his eyes open for more deal opportunities but will still have a healthy distrust of China that stem from a combination of factors, including human rights abuses, authoritarian governance, and lack of transparency and accountability. These concerns are fueled by actions like the repression in Xinjiang, the erosion of democracy in Hong Kong, and the expansion of surveillance technology both domestically and internationally. The list can go on.
Trump is clearly on the right track to make global trade fairer and to find a balanced solution with China. Both countries realize that they must work together, but they are also eager to find independent paths going forward. The polarization will continue.