Three days after China and the United States surprised and delighted the markets with dramatic tariff cuts for 90 days, their negotiators met again on Thursday in the South Korean capital of Seoul. There were more de-escalatory measures from each side this week with the US cutting “de minimis” tariffs on Chinese ecommerce firms such as Shein and Temu, while China froze the blacklisting of some American companies.
The deal agreed in Geneva reduces China’s tariffs on US goods from 125 per cent to 10 per cent and American tariffs on Chinese goods from 145 per cent to 30 per cent. The US tariff on Chinese imports could come down to 10 per cent if Beijing satisfies Washington that it is doing enough to halt the export of chemicals used to make the drug fentanyl.
The tariff truce drove a global market rally and set off a surge of activity in Chinese factories and at ports where shipping to the US had stopped. China’s manufacturing cost advantage of at least 50 per cent for many goods means that, with a 30 per cent tariff, they are still attractive to American importers.
The deal was the latest in a succession of retreats by Donald Trump since he declared his tariff war at the beginning of April. But China was eager for a reprieve too as the tariffs threatened to cost millions of jobs and put hitherto profitable factories out of business.
Chinese media welcomed the deal as “a great victory” and Beijing’s resolve and political strategy appears to have paid off by persuading Trump to blink first. This did not stop the White House from describing the truce as a “historic trade win” and Trump heralding a “total reset” with China.
The last time Trump launched a trade war against China, it took 18 months to agree a deal that included Chinese promises to import more goods from the US. Relations between Washington and Beijing have deteriorated since then but US treasury secretary Scott Bessent struck an optimistic note in Geneva, seeing an opportunity in the current crisis.
“The US economy has become very unbalanced. On one side, we have ... the deepest and widest financial markets in the world. We have financial innovation. We have a tech sector that is the envy of the world,” he said.
“On the other side, we are a natural resources economy led by energy. So it is a barbell. But in between ... precision manufacturing has been wiped out, and it is our intent to bring that back. We want to rebalance, and I think that there is a big opportunity ... The Chinese, they have gone the other way. They are unbalanced in terms of overproduction in the manufacturing sector. They have stated but have not yet rebalanced toward a more consumption-oriented economy. There is a chance if we can open up trade to China, have more fair trade toward the US, that we could rebalance together.”
If the US wants to bring back precision manufacturing, China is well placed to provide the investment and technological know-how, in a reversal of the economic relationship between the two countries for almost four decades. This could not only see China as the source of technology transfer but as a more consumption-oriented economy becoming a market for more US manufactured goods.
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Such a scenario seems fanciful in the context of the deep, bipartisan hostility towards China on Capitol Hill and the lack of trust between Beijing and Washington. But it is already happening with some of China’s other major trading partners as Chinese electric vehicle producers and other high technology manufacturers invest in plants around the world.
It is in China’s interest to de-escalate the tariff war with the US and restore predictability to the terms of trade as soon as possible and that might suit Trump too. But a speedy settlement between Beijing and Washington could be bad news for the European Union, which has until now benefited from strength in numbers in defying Trump.
There was speculation in Beijing this week that one reason China agreed to move swiftly in Geneva was because it feared being left as the last man standing. The formidable trade negotiators in Brussels, who are currently playing hard to get with Beijing, will need all their ingenuity to avoid standing alone and vulnerable as they face their former friends in Washington.
