U.S. and Chinese officials are meeting in Stockholm this week to address key bilateral trade issues. They’re preparing for a possible trilateral meeting at an upcoming summit between President Donald Trump and Chinese President Xi Jinping. Given the upcoming elections, these discussions could not come at a better time. The United States continues to experience a punitive $295.5 billion trade deficit with China, while China’s global trade surplus nears $1 trillion.
The agenda for these talks go beyond bilateral trade talks, touching on issues that impact both U.S. and Chinese economies. The U.S.’s stated objective is to negotiate improved access for U.S. exports to China. This approach will lead to a rebalancing of the Chinese economy towards increased domestic consumer spending. China is applying significant pressure to forgo removing a 20% tariff on fentanyl analogues. This new tariff was set by the Trump administration at the beginning of the year.
China is quickly becoming the world leader in advanced manufacturing for electric vehicles and other advanced technologies. Even more problematic, this shift further exacerbates and complicates China’s financial and geopolitical reach, which has alarmed the U.S., Europe, Japan, and South Korea.
The upcoming Stockholm meeting could be an opportunity to raise China’s record oil purchases from Russia and Iran. Both of these countries have been targets of U.S. sanctions. These transactions have come under increased scrutiny from American officials seeking to limit China’s engagement with these countries.
In February, President Trump imposed a 10% tax on Chinese goods, citing China’s failure to control the outflow of chemicals linked to fentanyl production. China quickly fired back with their own retaliatory tariffs on U.S. exports. This retaliation hurt many of our most essential products such as coal, liquefied natural gas, beef, chicken, pork and soybeans.
In July, China took steps to exert greater control over two precursors commonly used to produce fentanyl. This move was considered a response to U.S. pressure and a move to show some goodwill ahead of talks that were to be held later. Bessent, a representative involved in the negotiations, expressed hope that “now we can move on to discussing other matters in terms of bringing the economic relationship into balance.”
The coming meeting in Stockholm should focus on identifying those “major irritants” concerning the overall trade relationship. This covers a number of concerns about China’s industrial overcapacity, a hot button topic in the United States and the European Union.
Chinese Premier Li Qiang acknowledged the criticisms surrounding China’s manufacturing capabilities, remarking, “Some enterprises, especially manufacturing enterprises, feel more deeply that China’s manufacturing capabilities are too strong, and Chinese people are too hardworking. Factories run 24 hours a day.” He added, “We recognize this challenge as well,” in a clear sign that China is at least attuned to this developing global narrative.
Most observers view the Stockholm negotiations as the last opportunity to make meaningful progress. The Chinese government is defending itself from accusations from American politicians that China is responsible for America’s fentanyl crisis. Instead, they contend that the biggest issue is the U.S.—the country prohibiting returnees from re-establishing themselves.
In testimony prepared for the hearing, U.S.-China Business Council president Sean Stein underscored the importance of these discussions. He stated that Stockholm could represent “the first real opportunity for the two governments to address structural reform issues,” particularly regarding market access for U.S. companies in China.
Wendy Cutler had underscored the critical nature of these talks. These meetings will be critical to laying the diplomatic groundwork for a possible upcoming fall meeting between Trump and Xi. She remarked that “the meeting will be important in starting to set the stage for a fall meeting between Trump and Xi.”
Yet the reality of this new readiness is more complicated, as both governments continue to double down on incendiary rhetoric and intransigent demands. The Trump administration’s hardline stance has drawn criticism from some quarters, with experts suggesting that “that is probably the preferred outcome for China hawks in the Trump administration,” concerned that an overly accommodating approach by Trump might lead to unfavorable concessions.
Neither country has left behind the turbulent waters marked by increasing polarization and great power economic rivalry. The conversations in Stockholm will have important implications. These findings will almost assuredly determine or at least guide global trade relationships, and no doubt affect the two countries’ economic game plans as well.
