On Monday, the United States and China took a bold step in confronting their noticeably complicated relationship. They released a joint statement taking great credit for their collective work. This would be the first joint message since the joint “Sunnylands” declaration on climate change cooperation in November 2023. While indeed imperfect, both nations are rightfully eager to leverage their growing economic and diplomatic ties. Now trade agreements and critical mineral supply chains are front and center in their discussions.
The fact that a joint statement was issued at all shows some readiness from both sides to talk, especially about the issue of tariffs. To calm the storm these two have agreed to pause the introduction of almost all new tariffs on each other’s goods for three months. This suspension serves to promote climate and social justice by aiming to foster dialogue around climate and trade actions. The U.S.-China Business Council raised concerns about the spoiling effect this suspension has on American companies.
“A 90-day suspension, while welcome, still creates significant uncertainty for U.S. companies’ business planning and costs, undermining their long-term global competitiveness,” – U.S.-China Business Council
Beyond tariff negotiations, China still holds a stranglehold on the supply chain of important minerals that are critical to clean, digital and traditional transportation. The Chinese Commerce Ministry dropped a bombshell last week. In November 2021, several ministries and provinces convened to reaffirm and strengthen export controls on these essential resources. This meeting occurred shortly after the Chinese language version of the joint U.S placeholder trade agreement, USMCA. This represents a serious, collaborative attempt to address chronic trade challenges.
Amid all of this, tech behemoth Nvidia is releasing a less capable version of its H20 supercharged artificial intelligence chip. This version, optimized for the Chinese market, will be released over the next two months. In October, U.S. officials restricted exports of the original model of this chip. This action highlights the heightened technology transfer frictions that continue between the two countries.
China is facing significant structural changes in its trade picture. This joint statement and tariff suspension come at a crucial time. In April, China was dealt a crushing blow by experiencing an over 20% decline in exports to the U.S. The country soon turned the tide and increased sales to Southeast Asia, the European Union, and Latin America. Specifically, China’s imports from Argentina last year were up by 6.4%, totaling $7.03 billion. The country recently inked a letter of intent with Argentine exporters. They’re intending to buy an estimated $900 million in soybeans, corn, and vegetable oils.
Additionally, China has reinstated soybean exports from five Brazilian companies, a move that further diversifies its imports of agricultural products. These latest developments further demonstrate China’s strategic moves and counter moves to position themselves in global trade to reduce the impact from dependence on any one market.
The offshore Chinese yuan fell against the greenback, down 0.22% to 7.2114. In comparison, the yield on the benchmark 10-year Chinese government bond is 1.672% – just 53.3bp above zero. These economic indicators show continued volatility in China’s financial landscape during a changing and increasingly contentious global trade relationship.
“It might be just the beginning of the inevitable collision of the two largest economies,” – Ting Lu, chief China economist at Nomura
Even though both countries have made strides with the last round of tariff negotiations, analysts are wary. For its part, Ting Lu said, U.S. appears on the offensive side. In the meantime, China is busily absorbing lessons in order to better prepare itself for some future challenge.
“The U.S. is still on the offensive, but China might learn much better on how to dig itself in for the future attack,” – Ting Lu, chief China economist at Nomura
These dynamics are complicated by competing approaches to commercial and extractive practices. The U.S.-China Business Council calls for the removal of all unfair trade distorting practices. They aim to remove undue market-entry barriers that limit American firms’ fair access to the markets.
Chinese President Xi Jinping has weighed in on the broader implications of trade tensions, asserting that “bullying and coercion only lead to isolation.” Yet embedded in this statement is the true, basic, insatiable Beijing desire that Washington cease all external pressure.