Can Washington and Beijing walk back their trade war?https://en.majalla.com/node/325120/business-economy/can-washington-and-beijing-walk-back-their-trade-war
In a Truth Social post on Wednesday, US President Donald Trump paused the global trade war he launched last week, giving nearly every country a 90-day reprieve on the new, higher US tariffs that had gone into effect just hours earlier. But one country was left out.
China, Trump said, would see its tariff rate shoot up to 125% due to the “lack of respect that China has shown to the World’s Markets,” while all other countries received an amended 10% tariff rate. The White House later said that its tariff rate on most Chinese imports is actually because there is already an existing levy of 20%.
As erratic as Trump’s decision-making has been, it doesn’t come as a surprise that Washington’s trade broadside has now narrowed, at least temporarily, to a US-China trade war. Trump and his advisors have long identified China as the top offender in an unfair global trade system, dumping subsidized goods on the United States. And Chinese President Xi Jinping drew Trump’s ire as the only leader who dared to fire back with retaliatory tariffs in response to Trump’s tariffs announcement last Wednesday.
On Friday, China retaliated against Trump’s reciprocal tariffs by raising its levies on US goods to 125% from 84%, the Chinese finance ministry said.
“Even if the US continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of world economy,” the ministry said in a statement.
“With tariff rates at the current level, there is no longer a market for US goods imported into China, and if the US government continues to increase tariffs on China, Beijing will ignore.”
China is in a better position to endure the pain. In the US, you're going to start to hear rumblings from consumers as prices increase in supermarkets and retail stores
Wendy Cutler, VP of the Asia Society Policy Institute
Walking back the trade war will prove challenging for two countries led by leaders with substantial egos and largely unchecked power. Over the past week, as the trade battle has ratcheted up day by day, both governments have tried to cast themselves as having the upper hand.
The Chinese Commerce Ministry said in multiple statements that it would not cave into US "bullying." Chinese state media and official statements signal that Beijing is prepared to weather the storm, even if it shaves points off its GDP growth this year against an already tepid economic backdrop.
"They have a bunker that they've been building for this moment. They're in the bunker, and if I'm Xi Jinping, I'm feeling a lot more comfortable than Donald Trump today," Melanie Hart, the senior director of the Atlantic Council's Global China Hub, told reporters in a press briefing on Wednesday before the pause was announced, pointing to Beijing's effort in recent years to reduce reliance on external markets and boost domestic innovation.
And for all the power Trump has concentrated, he is still more vulnerable to pressure from the markets and the US electorate compared to Xi, who has vaulted himself to a status unrivaled since the days of Mao Zedong.
"I think China is probably in a better position to endure the pain, given that it's an autocracy. I think in the United States, you're going to start to hear many rumblings from consumers as we see price increases in supermarkets and in retail stores," said Wendy Cutler, a vice president at the Asia Society Policy Institute and former negotiator in the Office of the US Trade Representative (USTR).
China's President Xi Jinping (C) applauds at the end of the closing session of the 14th National People's Congress (NPC) at the Great Hall of the People in Beijing on March 11, 2024.
The question then is, will the countries wait to hit a point where the economic pain becomes unbearable, or can they take a shortcut to negotiations?
While the tariffs are likely to hit China harder, given that it exports more goods to the United States, they will also be felt in the United States. China has already countered with 84% total tariffs on the United States, and it is likely to hit back again against Trump's latest tariff announcement with more ammo.
"I think both sides now have almost exhausted the tariff tool, given the tariffs are so high now that very little trade, if any, is going to be taking place between the United States and China," said Cutler, adding that Beijing will likely turn once again to other measures in its arsenal, such as sanctions on US companies.
Under the existing Chinese tariffs on US imports, American farmers—one of Trump's key voter bases—are certain to suffer. The sector is deeply reliant on trade with China, which is one of the world's biggest buyers of agricultural goods and, in 2023, was the largest market for US agricultural exports, particularly for soybeans.
"We're in a tough stretch with the farm economy already, and hurting exports in combination with the already struggling farm economy is very dangerous and very scary for us in [agriculture]," Caleb Ragland, the president of the American Soybean Association, told Hoosier Ag Today.
American farmers have felt the pain of Trump's trade wars before. During Trump's first term, his trade war with China cost the industry more than $27bn in lost agricultural exports between 2018 and 2019—prompting his administration to ultimately offer a $28bn bailout to help cushion the blow.
US Agriculture Secretary Brooke Rollins has said the Trump administration is mulling offering farmers similar assistance now, although, she added, "we're in such a period of uncertainty in terms of what this looks like." "The goal is we won't need to do it at all, that these changes and the realignment of the economy will result in an unprecedented air of prosperity for all Americans, but especially for our farmers and our ranchers," she told Bloomberg News on Wednesday.
Yet even if the Trump administration does throw farmers another emergency lifeline, other damage will be harder to undo. The US agricultural sector lost substantial market share for soybeans sales to Brazil after Trump's first trade war, and Chinese buyers may continue to look elsewhere if the trade war continues to intensify.
Ultimately, Josh Lipsky, the senior director of the Atlantic Council's GeoEconomics Center, said now that both countries are dug in, "there's going to have to be, I think, significant economic pain felt, either in financial markets or the real economy, on both sides" before either country extends an olive branch. The key indicators to watch in the United States will be in the real economy—whether the labor market is suffering and the country is nearing a recession due to the trade war. "Real economy indicators coming through in a way that is shocking compared to the forecast right after the election—that is what can change the calculus," he said.
Trump is still hoping that Beijing will cave under the pressure of his mounting tariffs before that point. In a press conference on Wednesday afternoon, Trump said he is still open to a deal with China, but he suggested that the onus is on Beijing.
"China wants to make a deal. They just don't know how quite to go about it, you know. ... They're proud people. And President Xi is a proud man. I know him very well, and they don't know quite how to go about it, but they'll figure it out," he said. "A deal is going to be made with China."
Despite the friction, Trump said he is still willing to meet with Xi, but again he wants to see the Chinese leader come to him. "I think that President Xi is a man that knows exactly what has to be done. He knows exactly what has to be done. I think I'll get a phone call at some point, and we'll be off to the races," Trump told reporters at a separate event in the Oval Office.
The Chinese side has reportedly struggled to find an interlocutor within the Trump administration, but such a back channel would be critical, allowing both sides to come to the table simultaneously and therefore save face, Cutler said.
To successfully relaunch talks, Beijing will have to be prepared to offer a significant package to the Trump team, said Mark Wu, the director of Harvard University's Fairbank Center for Chinese Studies and a former senior advisor in the USTR under the Biden administration.
"I think the Trump administration has made clear, even though you haven't fulfilled the terms of the last deal, we're still willing to begin in negotiations with you, but they're going to need to see much more that's possibly on the table this time around, especially given that the terms of the last deal have not been fully fulfilled," he said. In the so-called Phase One deal, brokered at the end of Trump's first trade war with China in 2020, China pledged to buy an additional $200bn in goods and services from the United States within two years, which Beijing ultimately failed to reach.
When asked by a reporter on Wednesday what specifically Trump would like China to do, the US president responded: "I'll be telling China what that is, not you."
It may be a while yet, and several rounds of further escalation, before the two sides get to a point where they can earnestly discuss the real contours of a new trade deal, though. "The tragedy is that both the US and China are large enough economies to sustain this kind of war of attrition," said Jack Zhang, an assistant professor of political science at the University of Kansas.
"Wars of attrition do eventually end, and stalemates are broken in unexpected ways," he added. "The timing is hard to predict. What is certain is that the United States and China will both be worse off coming out the other side."
