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How the fragile US-China trade truce is unraveling – DW – 06/05/2025
How the fragile US-China trade truce is unraveling – DW – 06/05/2025

DW

time4 days ago

  • Business
  • DW

How the fragile US-China trade truce is unraveling – DW – 06/05/2025

Donald Trump has accused Beijing of breaching last month's deal to cut steep tit-for-tat tariffs. Could a much-awaited call between the US and Chinese presidents break the deadlock? The world exhaled when the United States and China unveiled a 90-day tariff truce last month, pausing the escalating trade war between the globe's largest and second-largest economies, which had rattled businesses and investors. The deal, after tense negotiations in Geneva, slashed US tariffs on Chinese imports from 145% to 30% and China's retaliatory levies on US goods from 125% to 10%. Just three weeks later, however, US President Donald Trump reignited tensions, saying that China had "totally violated" the truce deal, without providing further details. Trump later said his Chinese counterpart, Xi Jinping, was "extremely hard to make a deal with." China swiftly countered, asserting that Washington had imposed "discriminatory and restrictive measures" since the Geneva talks, pointing to US curbs on chip design software and warnings about artificial intelligence (AI) chips produced by Chinese tech giant Huawei. Deal stalled over US access to rare earths US policymakers have voiced frustration at China's stalling on export license approvals for rare earths and other elements needed in the high-tech, defense, and clean energy sectors. China, which dominates global rare-earth production with over two-thirds of supply and 90% of processing capacity, has imposed export restrictions on several key minerals. The US, lacking domestic rare-earth processing capacity, remains highly vulnerable to Beijing's restrictions. Confusion remains over what was agreed on rare earths in Geneva. In an interview with news agency Bloomberg on Wednesday, Cory Combs, head of critical-mineral supply chain research at Trivium China, said Washington believed that Beijing would "completely remove the requirement of an approval [for export licenses]," which Beijing said it did not agree to. Michael Hart, AmCham China president, told the Financial Times on Monday that China has now stepped up approvals to ship rare earths to several US carmakers, noting how "only a handful" of officials are handling thousands of applications. Trump's economic philosophy: A real plan or simply chaos? To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Penny Naas, a distinguished fellow at the US-based German Marshal Fund think tank, thinks the rare earths are "China's biggest card," telling DW that "a key part of the negotiation will be when and how they liberalize the trade in those products." Naas expressed little surprise at the renewed war of words between Washington and Beijing, noting that, "You often see these highs and lows and even near-death experiences before deals are reached." But with the clock ticking until August 12 — when the 90-day pause expires — and both sides accusing the other of violations, the prospects for a lasting ceasefire and a long-term deal remain uncertain. Trump uses tariffs for maximum leverage Beyond securing access to China's rare minerals, the US seeks to cut its trade deficit with China, which was $295 billion (€259 billion) in 2024 — up nearly 6% on the previous year. The Trump administration has urged Beijing to boost purchases of American goods and eliminate non-tariff barriers, such as anti-monopoly probes targeting US companies and the designation of certain American firms as "unreliable entities." Washington has also demanded further economic reforms and an end to the manipulation of the Chinese yuan, which is kept artificially low to help boost exports. In April, when Trump announced his unprecedented tariffs, the yuan hit a 20-month low of 7.2038 against the dollar and is expected to weaken further if the higher US levies are reinstated. Trump has also pressed China to strengthen efforts to curb illegal immigration and halt exports of precursor chemicals used to produce fentanyl, an opioid fueling a public health crisis in the US. Will Trump-Xi call break the impasse? With US Treasury Secretary Scott Bessent acknowledging last week that negotiations have "stalled," all eyes are on whether a call between Trump and Xi will break the tariff deadlock. The US president has said for months that the two leaders were due to speak and even spoke of traveling to China for talks, without a public response from Beijing. US President Donald Trump said his Chinese counterpart is 'extremely hard' to make a deal with Image: Francis Chung/Imago The White House said Monday that a Trump-Xi call was "likely" to take place this week, a development that Antonio Fatas, an economics professor at INSEAD business school, said the US president would see as "his victory." "Trump's typically the one who calls people and tells them what to do," Fatas told DW. "But with a powerful player like China, that's not going to work. I wouldn't be surprised if China postpones the call." Although Trump will get the chance to talk to other world leaders on the sidelines of the upcoming G7 and NATO summits, the US and Chinese presidents aren't likely to meet in person until later in the year, signaling a protracted tussle that could last several more months. Tariff court battle plays into China's hands Another boon to China could be the lack of clarity over Trump's unprecedented tariffs after a US trade court last week ruled they were illegal. Although a higher court temporarily reinstated the levies, the White House has threatened to go to the Supreme Court for the ultimate ruling. "There may be a hesitancy to go all in on an offer at this moment when there's a large lack of clarity about the US position," the German Marshall Fund's Naas told DW. INSEAD's Fatas, meanwhile, predicted that the truce would be extended beyond the 90 days, adding: "Until I see the possibility of a real compromise on both sides, I'll remain very cautious and uncertainty remains incredibly high." Tariffs distract from US-China tech battle Both the Trump and Biden administrations have prioritized maintaining the US's technological edge over China, but there are growing concerns that the tariff policies are diverting resources and focus from US firms' ability to achieve this goal. Investor nervousness that the tariffs could cause a US recession has intensified. The tariffs have already increased costs and strained budgets for American tech firms, limiting their capacity to invest in research and development (R&D) at a critical time. With tariffs consuming significant attention among US policymakers, initiatives to bolster domestic innovation risk being sidelined. NVIDIA profits up, despite trade war challenges To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Beijing, meanwhile, has doubled down on the need to reduce its dependence on US technology. Through substantial state subsidies, China has advanced its capabilities in AI, quantum computing, advanced chip production, and 6G telecommunications, narrowing the technological gap with the US. Naas thinks that China has now caught up on "most of the technological advantage the US thought it had" and that US companies say they're "falling behind while spending all their time on reorienting their supply chains." "Is that the best use of their time when we're in hand-to-hand combat on the future of technology?" she asks. Edited by: Uwe Hessler

Xi's defiance pays off as Trump meets most Chinese trade demands
Xi's defiance pays off as Trump meets most Chinese trade demands

The Star

time13-05-2025

  • Business
  • The Star

Xi's defiance pays off as Trump meets most Chinese trade demands

BEIJING: Xi Jinping's decision to stand his ground against 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 Monday (May 12) a massive de-escalation in tariffs. In a carefully coordinated joint statement, the US slashed duties on Chinese products to 30% from 145% for a 90-day period, while Beijing dropped its levy on most goods to 10%. The dramatic reduction exceeded expectations in China, and sent the dollar and stocks soaring - providing some much-needed market relief for 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 Trump set at 34% on April 2, has been suspended - leaving America's top rival with the same 10% rate that applies to all countries including the UK, a longtime ally that reached a deal with the US last week. 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% tariff. "This is arguably the best outcome that China could have hoped for - the US backed down,' said 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 negotiation.' Xi struck a defiant tone ever since Trump began raising US tariffs to their highest level in a century. In contrast to other world leaders, he refused 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, Xi enjoyed a surge of nationalism at home encouraging him to avoid bending to US coercion. 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 Gerard DiPippo, associate director of the RAND China Research Center. "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.' Trump said Monday that he could speak to Xi as soon as the end of this week, as he touted a "total reset' in ties with China. He noted that the deal doesn't include sectoral tariffs on cars, steel, aluminum and potentially pharmaceuticals. Bessent told CNBC separately that the US doesn't want a generalised decoupling but wants to protect strategic necessities including steel, medicines and semiconductors. "The relationship is very good,' Trump said of China at a briefing on Monday. "We're not looking to hurt China. China was being hurt badly. They were closing up factories. They were having a lot of unrest, and they were very happy to be able to do something with us.' 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 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 Bessent said purchase agreements might come later. US Trade Representative Jamieson Greer made clear the "phase one' deal from Trump's first trade war, which committed China to buying US$200 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 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. Just like during 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 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. 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 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% this year. ING bank upgraded its gross domestic product forecast to 4.7% 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 Robin Xing, chief China economist at Morgan Stanley, who also cautioned that a "durable resolution remains challenging given the complex bilateral relationship.' Still, the Trump administration's retreat from sky-high tariffs wouldn't have occurred if China hadn't responded so forcefully, not only with retaliatory duties but also export controls and other steps, according to Scott Kennedy, a China expert at the Washington-based Center for Strategic and International Studies. "This will strengthen Xi's political standing at home and his diplomatic standing internationally,' Kennedy said. "He's the big winner from this round of the conflict.' - Bloomberg

Xi Jinping's defiance against Donald Trump paid off for China: Report
Xi Jinping's defiance against Donald Trump paid off for China: Report

Hindustan Times

time13-05-2025

  • Business
  • Hindustan Times

Xi Jinping's defiance against Donald Trump paid off for China: Report

The US and China announced their decision to lower tariffs on each other's products for a period of 90 days, proving that Xi Jinping's firm stance against Donald Trump turned out to be beneficial for the former's country. Following two days of high-level talks in Switzerland's Geneva, a joint statement said that the combined US levies of 145 per cent on most Chinese imports will be reduced by 30 per cent while China's duties on American goods will drop to 10 per cent. During the discussions, the United States ended up meeting all of China's core demands. The elevated "reciprocal" tariff, which Trump set up for China at 34 per cent on April 2, has been suspended, leaving Beijing with the same 10 per cent levy that applies to the UK, reported Bloomberg. The deal provided some much-needed relief for American markets as well as for Trump as the dollar and stocks went soaring, while Chinese equities also saw an uptick. At the talks in Geneva, the two sides agreed to take "aggressive actions" to curb the flow of fentanyl, which could subsequently result in the elimination of the extra 20 per cent tariff. Chinese President Xi Jinping maintained his stance against the US despite Trump raising their tariffs to the highest level in any country. He refused to get on a call with Trump in contrast to other world leaders and stood his ground. Beijing reportedly instead opted to cut key interest rates and other measures to protect China's economy, while also sending out diplomats around the world to lock in fresh markets for Chinese products and slam America's "bullying". While economic difficulties did indeed strike China amid the rising US tariffs, nationalist spirit back home encouraged Xi to not give in to American coercion. Trump, on the other hand, faced immense pressure from market players and business lobbies. Trey McArver, co-founder of research firm Trivium China, said, "This is arguably the best outcome that China could have hoped for; the US backed down." "Going forward, this will make the Chinese side confident that they have leverage over the US in any negotiations," McArver was quoted as saying by Bloomberg. Meanwhile, Gerard DiPippo, associate director of the RAND China Research Centre, said the lesson out of this trade talk is that "economic power matters". "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," DiPippo added. The Trump administration's retreat from sky-high tariffs wouldn't have occurred if China hadn't responded so forcefully, not only with retaliatory duties but also export controls and other steps, according to Scott Kennedy, a China expert at the Washington-based Center for Strategic and International Studies. 'This will strengthen Xi's political standing at home and his diplomatic standing internationally,' Kennedy said. 'He's the big winner from this round of the conflict.' On Monday, the US President said that he could speak to Xi as soon as the end of this week, touting a "total reset" in Washington's relations with China. However, he said that the trade deal does not include the sectoral tariffs on cars, steel, aluminium, and possibly pharmaceuticals. At a briefing, Trump said that the "relationship is very good" with China, adding that America is not looking to hurt Beijing. "China was being hurt badly. They were closing up factories. They were having a lot of unrest, and they were very happy to be able to do something with us," the US President added. With the tariff war between the US and China on a halt for 90 days, Beijing now has a three-month time to strike a wider deal with Washington to rebalance trade and safeguard its own interests as well. China's white paper on national security, as cited by the state-run Xinhua news agency, said that it is committed to the stable development of relations with the US. However, it added that imposing pressure and threats is not the right way to deal with China. With Bloomberg inputs

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