Trump might claim China tariff victory – but this is Capitulation Day
Donald Trump is poised to declare Monday’s temporary truce in the US-China trade conflict as a triumph, though financial markets appear to perceive it as more of a capitulation.
Following the early morning press conference by US Treasury Secretary, Scott Bessent, in Geneva, the financial markets responded positively with a rise in stocks and higher bond yields. Bessent had been engaged in discussions with Chinese representatives to reach this accord.
This deal doesn’t revert to the pre-Trump administration trade terms. Instead, it involves a decrease in tariffs on Chinese goods from 145% to 30%, albeit initially for a 90-day period. In exchange, China reduced its tariffs on US imports from 125% to 10%, reeling back the severity of retaliatory measures enacted against the current US administration.
Although this marks a significant shift from the trade terms before Trump assumed office, it doesn’t meet the stringent embargo-like standards previously imposed. Both parties committed to ongoing discussions, yet the statement from the White House made no mention of longstanding concerns, including the value of China’s yuan.
Rather, the statement emphasized a “sustainable, long-term and mutually beneficial economic and trade relationship,” a markedly different tone from Trump’s earlier rhetoric about the US being “looted, pillaged, raped, and plundered by nations near and far.”
The president’s decision to soften his stance might be influenced by the instability in the markets. However, it seems more feasible that alarming warnings from retailers about potential empty shelves, supported by declining shipment data to US ports, empowered trade moderates within the administration.
Faced with prospects of toy shortages, Trump remarked that children should be content with “two dolls instead of 30 dolls,” even if they cost a bit more than usual. Yet, even for a president as confident as Trump, sustaining the blame for shortages akin to Covid-induced scarcities in the world’s largest economy would be challenging.
Consequently, the White House seems to have strategically retreated. The China-US trade discord was always the most intense battlefield in Trump’s trade skirmishes, with a richer history and broader public endorsement than his unconventional critiques against Mexico and Canada.
If Trump indeed shows readiness to negotiate even with Beijing, it implies that some of his other aggressive trade strategies could be open to dialogue. However, what Bessent and his Chinese counterparts have not eliminated is the pervasive uncertainty afflicting investors globally following Trump’s tariff announcements.
Currently, the reductions in China tariffs are only provisional, with several other countries still awaiting clear negotiations on their tariff levels, pending the conclusion of another 90-day pause on Trump’s “reciprocal” levies, which is set to end in July.
Meanwhile, businesses across the international trading landscape are left grappling with the uncertainty of which policy iteration might become permanent and could be inclined to circumvent the US market when feasible.
Despite the decrease in tariffs, with 30% still on Chinese exports to the US, the larger context remains unchanged: two major economic forces continuing to drift apart.
