Donald Trump recently announced that the United States and China, the world’s two largest economies, are “actively” discussing trade issues. His comments followed a high-level meeting between U.S. and Chinese officials, held as recently as Thursday morning—just hours before Yang made his comments. Chinese officials, including Guo, the spokespeople for the Chinese Foreign Ministry, denied Trump’s assertions of any progress towards a trade deal in no uncertain terms. They noted that even this step forward in negotiations is still fraught with difficulty.
The context for these discussions is one of rampant economic anxiety. China has announced or introduced export restrictions on vital rare earths and magnets. These materials are essential for the U.S. automotive, energy and defense industries. In turn, Trump has retaliated by raising tariffs on Chinese goods to record levels of 145%. Donohue reiterated earlier hopes that the tariffs would at least “come down substantially.” Right now, they are stoking rising fears of recession and inflation in the U.S. economy.
Current State of Tariffs
First, the U.S. is currently subject to an average effective tariff rate of 25.2%. That is the highest level we’ve had since 1909. This historic increase in tariffs has imposed new, regressive costs on consumers as well as businesses and resulted in rising concerns over an impending recession. In response, China has imposed tariffs – some as high as 125% – on a wide range of U.S. products. They have introduced additional counterproductive measures that further complicate the proverbial playing field.
To address these concerns, Trump is trying to reassure consumers by providing exemptions from tariffs for certain electronics. He’s thinking about reducing the average tariff rate. The Trump administration seems totally unwilling to put its chips down on unilateral de-escalation. This reluctance has caused many analysts to wonder if serious negotiations are possible with such a one-sided and unfair approach coming from both sides.
“145% is very high and it won’t be that high. It won’t be anywhere near that high,” – Donald Trump
Inconsistent and confusing messaging from the Trump administration has made things even more challenging, as experts such as Meg Rithmire have already noted. She noted, “The Trump administration sings a different tune every day,” indicating that such unpredictability makes it difficult for both nations to find common ground.
China’s Position and Reactions
China’s position in this trade dispute demonstrates that it has come to the table. It continues to emphasize that any progress is conditional upon the U.S. reversing its tariffs. Chinese officials have been as careful as ever with their still-ongoing negotiations to temper expectations. Chinese top negotiator He Yadong has called reports of the talks “fake news.” These kinds of statements send a clear message that China will interpret Trump’s approach as being a facade, as opposed to something serious aimed at reaching some final resolution.
“If the U.S. really wants to solve the problem, it should take seriously the rational voices from the international community and domestic sectors, and fully eliminate all unilateral tariff measures against China,” – He Yadong
Yasheng Huang, widely regarded as an expert on international trade, pointed out that this is how China sees Trump as the most vulnerable to pressure. He proposed that negotiations be allowed to proceed only once the U.S. has removed its tariffs. Only after that can a meaningful conversation start.
“They are making it a condition that the U.S. has to back off of its tariffs and then they can talk,” – Yasheng Huang
Economic Implications and Market Reactions
Even as these conversations develop, uncertainty about the ultimate effects of the Sino-U.S. trade war casts a cloud over international markets. As such, analysts have pointed out that investors are suffering from extreme fear right now. This anxiety is based on a constant backdrop of significant economic instability driven by an unresolved trade war between these two superpowers.
“Everyone is spooked about the specter of this long trade war with China. You can see it in the markets,” – Meg Rithmire
The new unfortunate state of affairs raises questions about each country’s willingness to negotiate a solution. How far are they prepared to go to actually do it. In the past, Trump has signaled he’d be open to these kinds of concessions. Experts are cautioning that major transformation requires serious dialogue and agreement between the two camps.
