Xi defiance pays off as Trump meets most Chinese trade demands

Straits Times

12-05-2025

Chinese President Xi Jinping has struck a defiant tone ever since US President Donald Trump began raising tariffs on China. PHOTO: AFP
BEIJING – Mr Xi Jinping's decision to stand his ground against US President Donald Trump could hardly have gone any better for the Chinese leader.
After two days of high-stakes talks in Switzerland, trade negotiators from the world's biggest economies announced on May 12 a massive de-escalation in tariffs. In a carefully coordinated joint statement, the US slashed duties on Chinese products to 30 per cent from 145 per cent for a 90-day period, while Beijing dropped its levy on most goods to 10 per cent.
The dramatic reduction exceeded expectations in China, and sent the dollar and stocks soaring – providing some much-needed market relief for Mr Trump, who is facing pressure as inflation looks set to speed up at home. Chinese equities also surged.
The deal ended up meeting nearly all of Beijing's core demands. The elevated 'reciprocal' tariff for China, which Mr Trump set at 34 per cent on April 2, has been suspended – leaving America's top rival with the same 10 per cent rate that applies to the UK, a longtime ally.
The US met Beijing's call for a point person for talks by setting up a mechanism headed by Treasury Secretary Scott Bessent. And the two sides agreed to take 'aggressive actions' to stem the flow of fentanyl, which could eventually lead to the elimination of the additional 20 per cent tariff.
'This is arguably the best outcome that China could have hoped for – the US backed down,' said Mr Trey McArver, co-founder of research firm Trivium China. 'Going forward, this will make the Chinese side confident that they have leverage over the US in any negotiations.'
Mr Xi struck a defiant tone ever since Mr Trump began raising US tariffs to their highest level in a century. In contrast to other world leaders, he refused Mr Trump's repeated calls to get on the phone with the US president – even as levies rose to levels that China called a 'joke.'
Officials in Beijing instead cut key interest rates and took other steps to fortify China's economy, while dispatching diplomats around the world on a charm offensive to secure fresh markets for Chinese products and decry US 'bullying.'
Although China began feeling economic pain, with factory activity starting to slump, Mr Xi enjoyed a surge of nationalism at home encouraging him to avoid bending to US coercion.
Mr Trump, meanwhile, faced increasing pressure from business lobbies, market players and members of his party who feared losing their seats in mid-term elections next year.
'The lesson is economic power matters,' said Mr Gerard DiPippo, associate director of the Rand China Research Centre. 'For Beijing, it's a strategic vindication, and one that makes Xi's focus on manufacturing and self-reliance harder to argue against, at least from an economic security perspective.'
Mr Trump said May 12 that he could speak to Mr Xi as soon as the end of this week, as he touted a 'total reset' in ties with China.
Once the trade talks were announced last week, the choice of Geneva already indicated the US was ceding some ground. China has long preferred that substantive talks take place in private, away from television cameras and prying reporters.
The highly stage-managed truce was notable along with the fact Mr Trump didn't front-run the news on social media, according to Deutsche Bank strategist George Saravelos. 'All of this is a clear signal of negotiations moving in to a more conciliatory and respectful' phase, he added, citing that as another Chinese demand.
For China's part, Vice-Premier He Lifeng's team agreed to roll back 'non-tariff' measures imposed since Liberation Day, without elaborating. Getting relief on export controls imposed on rare earths was a priority for the White House, after it came under pressure from firms using such minerals for industrial magnets.
Beijing also didn't pledge to increase investment from the US, and Mr Bessent said purchase agreements might come later. US Trade Representative Jamieson Greer made clear the 'phase one' deal from Mr Trump's first trade war, which committed China to buying US$200 billion (S$259 billion) of US goods, hadn't been under discussion.
'The talks were very much focused on how do we get the tariff levels to something that is not an embargo, but still allows the United States to pursue its goal of trade deficit reduction,' he said.
China now has a three-month window to strike a broader deal with the US that rebalances trade, while safeguarding its own interests. Beijing has devoted years since Mr Trump's first term to reducing its dependence on the US for key imports, buying more agricultural products from partners in emerging markets such as Brazil.
Chinese Vice-Premier He Lifeng's team has agreed to roll back 'non-tariff' measures imposed since Liberation Day.
PHOTO: REUTERS
Just like during Mr Trump's first term, China will not compromise on key parts of its economic and political system, including how state-owned enterprises are run, according to Dr Song Hong, deputy director of the Institute of Economics at the Chinese Academy of Social Sciences, a ministry-level institution under the State Council, akin to China's cabinet.
'Beyond the red lines, there are a lot of gaps we can fill through negotiations,' he added, citing things like tariffs, intellectual property rights and subsidies.
Dr Dong Yan, director of the trade department at another institute under the Chinese Academy of Social Sciences, said it was a good development while cautioning that Mr Trump could yet hike them again.
'We have learned our lesson from Trump 1.0, where we saw that tariff negotiations can go back and forth rather than being achieved overnight,' she said.
The reduction in tariffs should make it easier for Chinese policy makers to hit a growth target of about 5 per cent this year. ING bank upgraded its gross domestic product forecast to 4.7 per cent for this year after the deal, saying May and June exports to the US are likely to bounce back sharply.
The suspension window could lead to more frontloading of shipments and production, according to Mr Robin Xing, chief China economist at Morgan Stanley, who also cautioned that a 'durable resolution remains challenging given the complex bilateral relationship.'
Although the reduction in tariffs is a positive development, Mr Trump has still made it clear the world is no longer in a 'wonderful globalisation mode,' Ms Alicia Garcia Herrero, chief Asia Pacific economist at Natixis told Bloomberg Television.
'It is better to bifurcate slowly and steadily and nicely,' she said. 'Rather than fighting over it as we were doing right before this conversation started in Geneva.' BLOOMBERG
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