Now that’s a backdown.
Both Donald Trump and Xi Jinping have agreed to dismantle more of their respective tariff walls than anyone was expecting.
Trump’s tariff wall on Chinese goods topples from 145 per cent to 30 per cent. Xi’s tariff wall on American goods tumbles from 125 per cent to 10 per cent. Those reprieves will last for 90 days.
For weeks, bad economic news had been accumulating in both countries. Clearly, each leader has understood just how ugly things were getting in their respective economies.
“Neither side wants a decoupling,” said Trump’s Treasury secretary Scott Bessent, as he unveiled some of much of what was agreed after a weekend of talks in Switzerland.
Markets popped on the news of the tariff reduction. Hong Kong’s Hang Seng was up 3 per cent in an end of day rally on Monday. America’s markets are poised to boom. Australia’s ASX200 will likely do similar on Tuesday.
It is neck-snapping stuff after the two months of escalatory economic hits from Washington and Beijing. But there is a lot going on below the eye-catching headline tariff reductions.
“We want more balanced trade, and I think both sides are committed to achieving that,” Bessent said.
How is that going to be achieved?
The first Trump administration spent the better part of two years in trade talks with Beijing and achieved little more than a commitment – never honoured – for China to buy more American soybeans. Bessent on Monday suggested a similar purchasing agreement may be reheated.
China and America have agreed to keep talking. They certainly have plenty of profound economic disagreements to address.
“We believe that continued consultations will help resolve issues of concern to both sides in the economic and trade fields,” China’s ministry of commerce said in a statement.
There was never any chance that, after more than a decade of obstinacy, Xi over the weekend was going to move on any of the deep structural disagreements America has with China’s state-led economy.
The Trump administration could spend the rest of this term trying again with a similar lack of success, but it is not clear they are going to waste their time.
Bessent flagged that America is going to continue “strategic rebalancing” in five or six strategic industries and supply chain vulnerabilities, including pharmaceuticals and steel. The Trump administration is to continue to seek supply chain independence and to work closely with allied countries on this.
His fellow negotiator US Trade Representative Ambassador Jamieson Greer also confirmed that some Chinese goods will face a much higher levy than the new 30 per cent rate.
It was not clear if China has agreed to relax its rare earth export restrictions, which threaten America’s manufacturing of EVs and other economically important industries.
Greer said they had agreed to “work constructively together on fentanyl”. There is certainly scope for China to take action there, although only time will tell if the Chinese enforce it. There has been more talk than action by Beijing on the deadly trade.
Mountains of distrust have been heaped on to this already mutually suspicious relationship over the last two months. The real-world impact of this bruising period is going to be lasting and profound, despite the cheering from many Chinese exporters as the news broke late on Monday.
Apple has reportedly made a decision to hasten the end of all Chinese production by as soon as next year of all the iPhones it sells in America. Apple’s assembly lines in India are forecast to double at the expense of manufacturing in China.
Similar restructuring abounds across corporate America. Toy manufacturers Mattel and Hasbro have told investors in recent weeks that they are turbocharging plans to close factories in China and move production to Southeast Asia.
Chinese companies have responded similarly, with many hastening efforts to remove American – and American allies – from their supply chains. These huge, sweeping changes are not going to be undone by this tariff reduction, which still leaves imposts on Chinese goods far above those of any other country.
After a shocking period of mutual escalation, a negotiated backdown of the crippling tariff levels between the world’s biggest economies is goods for global growth and for Australia. But no one should mistake this Swiss breakthrough for an end to America and China’s fight over who will dominate the 21st century.
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