US–China trade truce is a pause for breath in a new Cold War

After all that, what remains unchanged? America still has a structural trade deficit, China still dishes out industrial subsidies, America still tries to block China from accessing advanced chips, and Beijing's state-capitalist model remains alive and well. What will change? The 90-day timeframe speaks volumes. This does not allow for a comprehensive agreement, but rather a temporary reprieve to avoid the political embarrassment of an uncontrolled economic collision.

The limited duration suggests that neither side expects to resolve their deep structural issues within that window, and that both are simply buying time. For many officials in Beijing, the Geneva truce is less diplomatic breakthrough than tactical pause in an increasingly existential struggle.

Xia Baolong, director of China's Hong Kong and Macau Affairs Office, seemed to encapsulate this in April when he said: "The US isn't after our tariffs, but our very survival." This existential framing dominates Chinese policy discourse. Rather than seeing tariffs as an economic tool, Beijing sees them as weapons in American's campaign to trigger China's collapse.

A time for pragmatism

While the 90-day truce provides breathing room for Chinese exporters and helps to stabilise markets, few in Beijing harbour any illusions about a fundamental reset. Wang Jisi, China's pre-eminent US expert from Peking University, cautioned that US-China competition may prove "more enduring, more wide-ranging, and more intense than any other international competition in modern history—including the Cold War".

The Chinese leadership's calculus in accepting the temporary tariff reduction appears pragmatic, rather than ideological. With domestic economic challenges mounting—from a property crisis to rising youth unemployment—Beijing can ill afford a tariff war. Yet the modest concessions on fentanyl precursors suggest that China is reluctant to address big US concerns without extracting maximum leverage.

Beijing's messaging emphasises resilience and resolve, rather than reconciliation. Official media portrays the truce as evidence that confrontational American tactics ultimately fail against Chinese determination. This narrative both maintains nationalist solidarity while also creating space for economic pragmatism.

Most tellingly, Chinese commentators increasingly draw parallels between current tensions and the original Cold War, though with a critical distinction. As Wang Jisi has noted, US-China tensions could be "sensationally more distressing than the analogy of the Cold War" due to the countries' deep economic entanglement and absence of established rules of engagement, meaning that this is now uncharted territory.

Market reaction

In Beijing, the 90-day window is seen less as an opportunity for fundamental reconciliation than as breathing space to recalibrate strategy in a long-term systemic rivalry defined by cycles of tension and détente. With domestic growth threatened by a property crisis and mounting local government debt, China cannot afford a prolonged trade standoff with its largest export market.

Investment banks that had downgraded China's economic forecast based on a tariff war are now cautiously upgrading projections. UBS, for instance, now anticipates 2025 GDP (gross domestic product) growth of 3.7-4%, up from 3.4% before the agreement. So the Geneva truce is already offering Chinese leaders temporary relief.

President Trump's tariff blitz was driven by structural concerns that have been years in the making, but his approach has been more confrontational than that of the Biden administration, which preferred to lecture China without wielding any leverage. This failed to deliver breakthroughs on key issues. Trump's weaponisation of tariffs at least caught Beijing's attention, but that might not translate into concessions.

At the core of the problem is America's huge $1.2tn trade deficit, which the Trump team characterises as a "national emergency". For Secretary Bessent, who has called out China's practice of subsidising labour and capital goods, tariffs help "level the playing field for American workers and producers". The US administration also wants to "bring back our important strategic industries", with tariffs serving as leverage to reshape global supply chains in America's favour.

How to break China

American policymakers have long been frustrated by China's heavily protected domestic market. While Chinese companies enjoy relatively unfettered access to US consumers and capital markets, US firms face a labyrinth of regulatory hurdles, investment restrictions, and forced technology transfers to enter Chinese markets. Trump thinks tariffs may help pry open these closed sectors, including financial services, internet, and social media.

Behind both Biden's defensive posture and Trump's aggressive strategy is the same US goal of outcompeting China globally. This is exemplified by Trump's recent announcement that any country using Huawei chips would be considered in violation of US export control laws.

While Biden's team preferred export controls to keep advanced US chips from ending up in China, Trump wants to use America's market power to isolate Chinese products on world markets. This represents a shift from containment to displacement, using America's economic weight to force third countries to choose between US or Chinese tech ecosystems, with severe penalties for those who choose the latter.

Trump's strategy aims to fundamentally restructure the economic relationship with China, demanding US-style market access while simultaneously working to diminish China's technological reach globally. His administration appears convinced that only by playing hardball will it stop China from dominating the global economy.

Concession vs retaliation

Around the world, national economies are bracing for the next development. Manufacturing hubs like India, Vietnam, and Mexico now face pressure to secure their own favourable tariff terms with the United States. If the UK-US streamlined trade deal offers any lesson, it is that Washington is effectively forcing countries to strategically marginalise China from domestic markets.

Third countries now find their China trade policies effectively dictated by Washington as the price of American market access. This is a novel new form of economic coercion masked as bilateral dealmaking. It applies to US allies, too, with Japan in an unexpectedly precarious position.

Despite multiple visits and Prime Minister Ishiba's direct appeals to President Trump, Japan's US-bound goods will carry a 24% tariff rate. By comparison, Chinese goods have a 10% tariff plus another 20% applied due to the Chinese origin of the ingredients used to make fentanyl, the drug that has killed tens of thousands of Americans.

The lesson Japan and other allies draw is that, when it comes to Trump, conceding yields no better outcome than retaliating. Indeed, by securing the 10% baseline tariff, Beijing has effectively leapfrogged regional allies who queued up for bilateral negotiations. Japanese manufacturers now ask why their government's willingness to cooperate led to a worse outcome than China's brinkmanship.

The new normal

Events since January have redefined what constitutes "good news". China's effective 30% tariff rate is still punishingly high yet is celebrated because it is much less catastrophic than the 145% rate it had been. In short, Trump's initial tariff barrage has created a distorted baseline.

For American businesses, this unpredictability may prove to be as damaging as the tariffs themselves. For companies having already come through two major trade wars with China in the past seven years, the kind of long-term planning needed for big investment decisions and strategic alignment is virtually impossible. Arguably, unpredictable tariffs are even worse than high tariffs.

The coming weeks will be characterised by intense diplomatic activity and market uncertainty. Both the US and China have committed to establishing formal discussion mechanisms, with Vice Premier He Lifeng representing China while Secretary Bessent and Ambassador Greer represent the US. Yet there are big questions as to whether China is willing or able to meet the US structural demands.

Three months is an extraordinarily short timeframe for addressing deeply entrenched structural issues that have accumulated over decades. Neither the opening of access to China's market nor the removal of China's strategic sectors from global markets will be done quickly. Businesses and investors know that, so the 90 days are being seen only as a temporary truce.

While there may be market rallies and political soundbites over the coming months, the success of Trump's approach will be whether his actions lead to more balanced, sustainable economic relations between the world's largest economies. On that, the jury remains decidedly out.