Top American officials involved in trade negotiations with China emerged from two days of talks and confirmed that a deal between the two countries had been reached, which could have big repercussions for the global economy. “I’m happy to report that we’ve made substantial progress between the United States and China in the very important trade talks,” US Treasury Secretary Scott Bessent said in a statement Sunday in Geneva, where the talks were being held. US Trade Representative Jamieson Greer indicated that an Sunday. Bessent and China’s vice-premier He Lifeng had been engaged in closed-door discussions over this entire weekend, in the first meeting since US President Donald Trump slapped steep tariffs against China. Vice Premier Lifeng said the talks were “in-depth” and “candid”.
Bessent said that full details regarding the deal will be jointly shared on Monday. The Treasury Secretary had suggested earlier this week that his goal was de-escalation of tensions as the US and China have been at a stalemate since Trump rolled out his tariff policy. In the unfolding “Mexican stand-off” between the US and China, what was increasingly becoming clear was that both sides wanted to break the stalemate.
The while China slapped a retaliatory 125 per cent tariff on the US, alongside restrictions on exports of “rare earths” to the US. This was akin to an outright trade embargo between the top two economies of the world, and was untenable in the long run. Someone had to give in. The US appears to have blinked first.
While the fineprint is yet to be released, Trump had indicated ahead of the talks that he was willing to cut the tariff rate on China to 80 per cent, saying in a Truth Social post that it was “up to Scott B.,” referring to Bessent, as the Treasury Secretary headed into the Geneva talks. The White House later clarified that China also needed to make concessions. Economists quoted by the CNN have said 50 per cent is the “make-or-break threshold” for the return of somewhat normal trade between the two countries.
One reason for the urgency on the part of Washington is the combination of fewer goods coming in from China and increased costs on imports that land at US ports has already started pushing up prices for most Americans. Goldman Sachs analysts had said late last week that an metric would effectively double to 4 per cent by year end because of Trump’s trade war, which is a daunting prospect for the administration.
In terms of continuing with these tariffs, the US was faced with multiple disadvantages. The impact of Trump’s escalating trade war with China has already begun to show up, with American port operators and air freight handlers reporting steep drops in imports from China. Retailers such as Walmart and Target too had warned of empty shelves and higher prices.
The high American tariffs had started to take a toll on China’s manufacturing sector, with Chinese factory activity contracting at its fastest pace in 16 months in April. So, there was some degree of urgency on Beijing’s end to bring this to an end.
While there is no denying that China has manipulated the global manufacturing sector through unfair means and there are legitimate grounds for challenging the country’s stranglehold over manufacturing exports and its intent to weaponise trade, Beijing has shown far greater staying power in the trade stand-off with the US. Unlike Trump, Chinese President Xi Jinping is not faced with elections anytime soon, there is very little internal opposition to his management of the economy at this point in time, and the country is already in the middle of a stimulus package roll out that includes a combination of fiscal and monetary measures. It can continue its fiscal stimulus package too well into the future.
The US is at a disadvantage in all of this. There is little firepower on the fiscal side, except the prospect of an extension of corporate tax concessions that Trump had promulgated in his last term. Worryingly, there is also an impending showdown that the Trump administration is likely to have with the US Federal Reserve on the issue of cutting interest rates, which Federal Reserve Chair Jerome Powell has indicated is unlikely to happen anytime soon.
According to Martin Wolf, chief economics commentator at the Financial Times, China is likely to come out better than America in their escalating trade war. “The Americans will have to be much cleverer than they’ve been so far (in this trade war with China). I mean, much cleverer to avoid eventually losing… China has tremendous room for maneuver. America, on the other hand… It’s politically fragile. The economy looks somewhat fragile now. The markets look fragile… This trade war is going to damage American business very, very considerably. It’s going to make the supply chains in America extremely fragile already, likely to break quite a number of them. The supply shock here could be really quite damaging”, he told .
