Last week, an unexpected truce was reached amidst the escalating tariff war involving the United States and China. This agreement is viewed by various Chinese commentators as a positive outcome for the nation. However, it appears that the path ahead for Beijing regarding its diplomatic relations with Washington will be challenging. Negotiations are anticipated to be fraught, as evidenced by the immediate fallout following the May 12 agreement between American and Chinese representatives in Geneva.
In the aftermath of the Geneva agreement, Beijing wasted little time in expressing its frustration. Almost immediately, China’s Ministry of Commerce accused the Trump administration of undermining the negotiations. This accusation surfaced in light of a statement from the U.S., which warned companies against utilizing artificial intelligence (AI) chips manufactured by Huawei—a prominent Chinese tech firm. Shortly thereafter, China accused the U.S. of abusing export controls to suppress its progress, particularly referencing the Trump administration’s guidelines regarding AI chips.
Additionally, the Chinese government has remained steadfast in its position regarding fentanyl, labeling it a problem originating from the United States rather than an issue stemming from China. This insistence on framing the epidemic as an American concern comes even when evidence suggests that more cooperative efforts in limiting hazardous chemical production could lead to reductions in tariffs imposed on Chinese goods.
The assertiveness demonstrated by Beijing illustrates its unwillingness to make quick concessions that might adversely affect its image or strategic interests, despite the looming economic repercussions from trade hostilities. This situation comes with a reminder that, even with a temporary reduction in hostilities, the longstanding geopolitical rivalry between the two nations looms large, casting a shadow over future discussions. Washington’s perspective of an increasingly powerful China as a potential threat has resulted in further restrictions on Chinese access to American technology and investments.
The countdown for trade negotiations has begun, as the recent truce agreed upon lasts for only 90 days. Under the terms of the agreement, both parties consented to reduce tariffs that had effectively resulted in a trade embargo affecting both economies. As a direct result, assembly lines have come to a standstill, ports have experienced delays, and companies are struggling, trying to navigate the complexities of this shifting economic landscape.
While there haven’t been any formal announcements regarding additional trade dialogues, reports indicate that U.S. Trade Representative Jamieson Greer had discussions with China’s trade envoy Li Chenggang. These discussions occurred during a gathering of the Asia-Pacific Economic Cooperation (APEC) ministers. In subsequent statements, China’s Ministry of Foreign Affairs noted that Vice Minister Ma Zhaoxu also engaged with Richard Verma, the U.S. State Department’s Deputy Secretary for Management and Resources.
As discussions commenced, China’s state broadcaster CCTV took a more tempered stance compared to other media, noting that a renewal of trade ties could be beneficial for both nations as well as the global economy. However, it also emphasized the need for the U.S. to rectify what they termed as “wrongdoing” regarding previous tariffs, firmly stating that dialogue could only resume once dominance ceased.
During the announcement of new trade duties on various partners globally, China opted for immediate retaliation rather than backing down as other countries did. Even when the Trump administration temporarily paused duties on other nations, Beijing continued to position itself as a global leader addressing the challenges posed by the U.S., especially as the tariff situation escalated.
Chinese leadership, particularly under Xi Jinping, feels reassured in their strategy towards the U.S. and sees an opportunity to spin this uneasy relationship into a narrative of economic resilience, notwithstanding the underlying mistrust and escalating competition across various fields, from technology to military prowess.
The ramifications of maintaining or increasing tariffs could be grave for China, especially since the United States represents its largest export market. Economists like Alicia Garcia Herrero from Natixis indicate that if tariffs remain in place, it could lead to a significant decline in China’s economic growth and job losses.
Although observers express skepticism about the sincerity of China’s tough rhetoric, many believe some concessions will likely be made, including revisiting a previous trade agreement to procure more American goods and enhancing cooperation concerning the fentanyl issue. These potential concessions highlight the delicate balance Beijing must maintain between preserving its interests and engaging in fruitful negotiations, while also mitigating the potential fallout from further tariff conflicts.
As the deadline for the 90-day truce approaches, the outcome of negotiations between these two powerful nations will undeniably shape their future relations, creating an additional impetus for China to assert its own economic strategies including diversifying its markets and reinforcing domestic consumption in the face of shifting trade dynamics.