President Trump continues to assert that winning a trade war against China should be straightforward. His rationale is that since China exports triple the amount to the U.S. that Americans sell to the Chinese, they have more at stake. Trump’s approach included slapping a hefty 145% tariff on Chinese imports, anticipating that China would concede under the economic strain.
However, the anticipated desperation from China never materialized, and instead, they have retaliated with significant tariffs matching the U.S. in severity. In a pointed statement, China’s Foreign Ministry accused U.S. threats as mere “paper tigers.”
The stakes between two of the largest global economies are considerable, with bilateral trade amounting to $660 billion just last year. President Trump’s key economic negotiators are en route to Geneva for initial trade discussions with Chinese officials. Interestingly, Trump hinted at a potential reduction of tariffs, suggesting that a cut to 80% could be on the table.
Although a de-escalation in trade tensions would certainly be welcomed by businesses and investors alike, a swift solution seems unlikely. According to Craig Singleton, a senior fellow in China studies, the two nations lack a mutual roadmap to de-escalation. Should they agree to pare down the tariffs, it could provide relief to global financial markets and alleviate stress on businesses that rely heavily on U.S.-China trade exchanges.
John Gong, an economist in Beijing, warns that continued lack of progress could drive China away from the negotiations if they feel they’re not being treated equitably. The same sentiment echoed with Scott Bessent’s urgency to approach negotiations with sensitivity and strategy.
There’s disagreement already about who instigated the talks—U.S. or China, with each side pointing fingers. Trump reiterated that his tariff strategy, framed as a financial weapon for the U.S., may not be as potent as envisaged. His previous tenure showed similar tariff impositions, but the trade war with China remains the critical pressure point for markets and industries.
Further complicating matters, Trump’s hefty tariffs caused financial markets to drop, and led American retailers to sound alarms about potential shortages. The uneasy situation eroded consumer confidence due to fears of empty shelves and surging prices. Experts suggest that the chaos was not anticipated by the administration.
Initially, the two countries reached a temporary halt to tariffs in their “Phase One” deal in early 2020, with China agreeing to purchase more U.S. goods. However, they failed to address deeply-rooted issues like the subsidies granted by China to its local tech sector. Since then, China has strategically reduced its dependence on the U.S., while Trump underestimated America’s reliance on Chinese goods, which cover everything from baby carriages to device components.
Reports suggest that the hefty tariffs are making American products more costly to produce, rendering them less competitive. Louise Loo from Oxford Economics highlights that China may find it easier to source new trade partners compared to the U.S. finding replacement suppliers.
Nonetheless, the trade disputes have strained China’s prospects too, prompting a cautionary note from the International Monetary Fund about economic growth forecasts. In essence, both countries find themselves locked in an interdependent relationship, with potential adverse impacts on each end.
Meanwhile, the EU Chamber of Commerce remains optimistic about the scheduled meetings, expressing hopes for constructive results from these high-level discussions in Geneva.