In a landscape marked by escalating trade tensions and mutual distrust, former President Donald Trump is set to meet with Chinese President Xi Jinping. This high-profile meeting comes after a stretch of tariff increases. Collectively, these actions have been nothing short of a sea change in the economic relationship between the two countries. In this regard, the meeting could be a harbinger of a new phase in U.S.-China relations. Both leaders are clearly excited to address a number of persistent challenges that have added unpredictability for manufacturers and businesses worldwide.
In February, Trump announced a 10% tariff on all Chinese imports. This decision continued the pace outlined in ongoing tariffs set by his predecessor administration. This action was a piece of a larger plan to reduce U.S. companies’ dependence on Chinese manufacturing. These efforts were consistently undermined by multiple exemptions, which in turn increased Beijing’s negotiating confidence.
As a result, the U.S. has imposed tariffs that immediatly increase to an epic 145%. In retaliation, China has slapped back their own retaliatory tariffs up to 125%. This tit-for-tat approach has left many industries in limbo, as companies navigate the complex landscape of increased costs and supply chain disruptions.
In the most notable of these, China recently agreed to postpone its rare earth export restrictions in return for cuts in tariffs. This telling move further shows the potential tightrope that both countries will need to walk as they negotiate their economic future. Rare earth elements power countless high-tech applications, most notably in semiconductors. Any limitations on these materials would be a drastic blow to many industries that rely on such materials.
China has opened an anti-monopoly probe into Nvidia. Analysts are of the opinion that this is move directly responsive to U.S. tech limitations that could prevent China’s technological development. These types of maneuvers show how determined both governments are to apply pressure to help achieve their goals.
What’s more, Trump has threatened a further 34% surcharge on “Liberation Day,” March 1, 2019, making the negotiations even more difficult. Experts agree that recent U.S. tech restrictions will significantly setback China’s progress. Chinese restrictions on rare earth exports would be able to stop entire industries across China in their tracks.
China has decided to weather these pressures by playing the long game. It is pouring a staggering amount of money into creating new industries that depend far less on Western technology and inputs. Such a sharp strategic turn marks the seriousness of Beijing’s intent to limit its exposure to outsiders’ coercive force.
It took ten months of retaliatory tariffs, a shaky truce, and ongoing uncertainty for Trump and Xi to come together for this meeting. In June, the negotiated truce was quickly abandoned, and neither side really won. They promised a continuing conversation, at least until they could settle on an overall big agreement. In early October, those tensions reached a new peak when China took further steps to restrict rare earth exports. This round of funding underscored the immense task ahead.
With the meeting quickly approaching, Xi is likely to push for easing of curbs on semiconductor exports to China. The U.S. and China are in the midst of an all-out competition for access to critical minerals and semiconductors. These workers are the backbone of our advanced manufacturing capabilities.
In fact Trump and Xi could reach an arrangement on TikTok’s U.S. operations while they’re negotiating. This speculation has generated enormous buzz. The social media platform has since become a critical variable in the overall U.S.-China trade relationship. This radical change has raised a host of critical questions about privacy and national interest.
“This is the meeting that resets globalisation in a post-Covid era.” – Prof Tim Harcourt
Then U.S. Treasury Secretary Scott Bessent called the summit a game-changer. He explained that it provides an opportunity to address their pet issues. His remarks are indicative of the high hope and heavy expectation of what might come out of the meeting.