China bets Trump will back down on tariffs

Chinese officials call for a full repeal of levies and says trade talks with Washington haven’t begun, as Trump says he’ll talk tariffs to world leaders at Pope Francis’s funeral.

After weeks of spiraling hostilities, Trump now says he is willing to cut tariffs on Chinese goods. Picture: AFP

President Trump’s apparent softening on tariffs against China in recent days has buoyed markets and raised hopes for a detente between the world’s two largest economies. For Chinese leaders, it only strengthens their resolve that Trump will eventually cave if they wait him out.

After weeks of spiraling hostilities, Trump now says he is willing to cut tariffs on Chinese goods. His administration is considering slashing levies in some cases by more than half in a bid to de-escalate tensions with Beijing, The Wall Street Journal reported Wednesday.

While such a reprieve would ease anxiety over further escalation, it still wouldn’t prevent a painful rupture between the world’s two biggest economies. Nor would it likely be enough to satisfy Beijing.

Asked on Wednesday whether the administration was actively talking with Beijing on trade, Trump responded, “Actively. Everything is active.” A Chinese Foreign Ministry spokesman dismissed any suggestion that the two sides were negotiating as “fake news.”

On Thursday, Trump said his administration is talking about trade with Beijing, without providing details.

“This tariff war was launched by the US, and the Chinese side’s position has always been clear and consistent,” Foreign Ministry spokesman Guo Jiakun said Thursday. “If we fight, we will fight to the end; if we talk, the door is wide open. Any dialogue or negotiation must be based on equality, respect and mutual benefit.”

Chinese made cars for export are seen at a port in Shanghai. Picture AFP

A spokesman for the Commerce Ministry, meanwhile, demanded that Trump should completely eliminate unilateral tariffs against China if he is serious about resolving trade disputes through dialogue.

Desite China’s denials, the US president told reporters that Washington and Beijing had spoken spoke earlier on Thursday (local time) after he was asked to name those involved in talks.

“They had a meeting this morning, so I can’t tell you - it doesn’t matter who they is.

“We may reveal it later. But they had meetings this morning and we have been meeting with China.”

Mr Trump also said he planned to talk to world leaders about tariffs when he visits Rome for Pope Francis’s funeral.

“I’d like to meet them all. That would be nice. I’d like take care of all of them but we have many of them there and they all want to meet. They want to meet about trade. And we are making some great inroads and great deals.”

However, he said it would be “physically impossible” to negotiate with dozens of countries and “we are going to, at some point, just set prices for deals.”

Earlier, Treasury Secretary Scott Bessent suggested the US was near a trade deal with South Korea.

“We had a very successful bilateral meeting with the Republic of South Korea today,” Bessent told reporters in the Oval Office, adding that the talks “may be moving faster than I thought.”

“We will be talking technical terms as early as next week as we reach an agreement on understanding as soon as next week. So South Koreans came early, they came with their A-game, and we will see if they follow through.”

For weeks, leader Xi Jinping has been sending a strong message to the Chinese people that Beijing was prepared to trade blows with Washington on tariffs, and that they should be ready for a lengthy and painful struggle against the US.

Embedded in that calculus are memories of the first trade war with Trump, when attempts to accommodate White House demands failed to ease trade tensions. Instead, in the years that followed, Xi says, the US has only grown more aggressive in its efforts to suppress China.

Today, China says it is better prepared to withstand US tariffs than in Trump’s first term, with its economy less reliant on American technology and its trading partnerships more diversified.

China’s reticence about negotiations reflects, in part, a lack of trust in Trump and any promises he may make.

“The Trump administration is constantly shifting positions, so just listening to a few statements isn’t enough,” Jin Canrong, a prominent international-relations professor at Renmin University in Beijing, wrote on Chinese social-media platform Weibo. “Wait and see whether the US takes any concrete action.”

China hasn’t said under what conditions it would be willing to start negotiations with Trump, though the Foreign Ministry spokesman said Thursday that Trump must first abandon his maximum-pressure tactics.

Even if Trump were to slash tariffs to between roughly 50 per cent and 65 per cent—one possibility under consideration by the White House—it could still leave many Chinese products shut out of US markets.

“That’s still very prohibitive,” said Louise Loo, lead economist for China at Oxford Economics in Singapore. “At those levels most of the trade flows would probably be rerouted anyway.”

Employees work on an assembly line of lights at a factory of LED lighting manufacturer in southern China. Picture: AFP

The difference for China’s economy would likewise prove negligible.

When Trump floated a 60 per cent tariff on all Chinese goods during his presidential campaign, Oxford Economics estimated that such a steep levy would reduce Chinese gross domestic product by about 2 per cent, compared with a world in which tariffs stayed where they were.

With tariffs of 145 per cent, the hit is only slightly larger, at 2.2 per cent, highlighting how most of the damage was done with the initial tariff actions. Tariffs of 100 per cent or more on strategic goods “would constitute a trade embargo on those products,” Loo said.

A potentially more attractive option to Beijing would be for both sides to temporarily roll back recent tariff increases while they engage in talks over a longer-term solution.

“If Trump offers a postponement of recent tariff hikes while the two sides enter into negotiations, Beijing will reciprocate,” wrote Michael Hirson, head of China research at New York-based 22V Research and previously the US Treasury Department’s chief representative in China. “However, if Trump demands that Beijing first make concessions, China’s leadership will wait to see if political and economic pressures force Trump to back down.”

Cambodians hold portraits of China's President Xi Jinping and Cambodia's King Norodom Sihamoni in Phnom Penh earlier this month. Picture AFP

Part of Xi’s strategy to wait out Trump reflects the vast political power he has amassed at home and the government’s machinery to beat back any dissent. By contrast, Trump faces midterm elections 18 months from now.

Well aware of the divisions inside the US, Chinese state media in recent weeks has portrayed Trump as out of touch with many American voters, with Trump’s policies stirring inflationary concerns and raising uncertainty that has hampered business investment and hiring. On Thursday, it highlighted the news that 12 states have sued the Trump administration over the tariffs.

At the same time, Xi isn’t immune to domestic criticism over the state of China’s economy, which had been weakened before Trump’s tariffs by the effects of a property-market bust, rising debt and sluggish consumer confidence.

As many as 20 million people work in Chinese factories geared toward US exports, Goldman Sachs estimates, with a shutdown in trade putting those jobs at risk.

Despite these challenges, Xi believes the Chinese economy can withstand a collapse in trade with the US Officials are rolling out stimulus measures aimed at pumping up the economy by boosting consumption and investment in infrastructure, which economists believe should at least partially offset any hit to trade in the short term.

Beijing is also betting that Chinese exporters will be able to find new buyers for any products shut out of the US, though many governments are wary of yet more Chinese imports.

Even if the two sides can agree to dial back tariffs, analysts are downbeat about the prospects for a comprehensive deal to end trade hostilities. Washington is signaling it wants root-and-branch reform of China’s economy and not a repeat of earlier pledges to buy more American goods. Beijing is unlikely to want to give the impression that Washington is setting its domestic priorities, said Julian Evans-Pritchard, head of China economics at Capital Economics.

Tensions could easily flare up again if talks get nowhere, he said, with the risk that conflict spills over into other areas such as cross-border investment and finance. “There are still lots of areas where we could get further decoupling,” Evans-Pritchard said.

Wall Street Journal