In an extremely important and historic action on international trade relations, President Donald Trump has acted decisively. He has raised tariffs on China dramatically to an incredible average of 145% on practically all goods. This tit-for-tat titanic shove is the most serious leap yet in the developing slugfest between Washington and Beijing. In return, the U.S. now runs a record U.S. trade deficit with China, approaching $300 billion last year. By comparison, it has a significantly better trade balance with the UK – a $12 billion surplus.
As the weekend started, Trump suggested he would talk about trade issues when he meets with Chinese President Xi Jinping. That all hinges on how their preliminary negotiations go. The stakes are significant since both countries are pushing to strengthen their existing positions while avoiding escalating the situation even more.
Current Trade Landscape
Trade dynamics between the U.S. and China paint a very different picture. Just last year, the U.S. enjoyed a $12 billion trade surplus with the UK. It struggled to control a huge trade deficit with Beijing, showing the contentious nature of their sometimes-painful economic relationship. For example, Trump is incendiary and open about his disdain for trade deficits. He’s been equally clear that he will not agree to drop tariffs merely to jumpstart negotiations with China.
The retaliatory tariffs that China have enacted, in most cases, are harshly punitive in response to the U.S. actions. Today, most American manufactured goods are subjected to a de facto minimum tariff of 125%. This tit-for-tat approach has justifiably increased concerns among investors and businesses. On both sides of the Atlantic, the time is ripe for achieving fairer and more balanced trade conditions.
“I’m keeping my expectations in check. Tariffs are high. Tensions are high. It’s easier to impose tariffs than to unwind them.” – Wendy Cutler
Trump’s administration is approaching this weekend’s discussions with caution. Former U.S. trade negotiator Wendy Cutler expressed her skepticism in advance about what could emerge from the talks. She advised them to focus on creating a process for continued engagement rather than reaching a full-fledged accord right away.
Potential Outcomes and Challenges
As the leaders look ahead to negotiations, advocates are calculating likely outcomes and possible scenarios that could play out in the course of the talks. The worst-case situation would mirror the contentious 2021 discussions held by Biden administration officials in Alaska, where neither side could find common ground.
“The worst thing that could happen is kind of a big blowup, and the media is there to report it.” – Susan Shirk
Cutler stressed that whatever shape the negotiations take, it’s critical to stay disciplined and focused. Among other things, she noted that the Chinese government appears more circumscribed than in past meetings. This new reality could impact their mood for constructive engagement, too.
Cutler explained that there is likely to be enough skepticism about Trump from Chinese officials’ end to foster a more conservative Chinese approach to negotiations. As Deese pointed out, this prudent telegraphed approach may put pressure on Trump himself, forcing him to the table for more sober negotiations.
“They’re skeptical of Trump, and so they’re going to be very careful, which I think puts the right kind of pressure on President Trump.” – Wendy Cutler
Moving Forward
Looking forward, we hope to see both countries reach consensus on a new direction. Our hope is that this should relieve the tensions and prevent any additional escalation of tariffs. In their private discussions, we hope to see Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer point out the successful UK trade deal. The joint project has the potential to be a fundamental starting point for considering future collaboration.
“My impression is that this weekend’s discussions will focus on de-escalation rather than a significant trade agreement.” – Bessent
As scholars such as Susan Shirk have pointed out, tariffs are easy to impose. Undoing those tariffs is no simple task. She characterized the US-China negotiations as “a different animal” than the negotiations with the UK. She emphasized the challenges in coming to such an agreement with Beijing.
“What that suggests is that this decoupling, this extreme level of tariffs, is going to move in the direction of coming down either to zero or to some minimal level on both sides.” – Susan Shirk
As negotiations remain heated into the weekend, everyone is watching to see how—if at all—both leaders will steer us away from this stormy sea. Investors are holding their breath. Consumers too are optimistic, searching for indicators of progress that would translate into a more positive economic environment and lowered trade impediments.