FPJ Analysis: US-China Trade War De-Escalation

The weekend was one of ceasefires and huge sighs of relief on more than one front; something the world would fervently wish could endure. Within hours of nuclear neighbours New Delhi and Islamabad declaring a halt to hostilities, Washington announced it was holding off for 90 days the steep tariffs it imposed weeks earlier on Chinese exports. From an absurdly and unsustainably astronomical 145 per cent, President Donald Trump’s lethal levies came tumbling down to 30 per cent. The abrupt climbdown prompted Beijing to respond with corresponding cuts, from 125 per cent to 10 per cent. The bombshell April 2 “Liberation Day” levies and the retaliation it provoked seem, at least for now, a distant memory.

‘Who might have flinched first?’ Commentators speculated as they tried to make sense of the dramatic de-escalation. The jury is still out on that. But as is his wont, President Donald Trump claimed victory, so did the Chinese, for breaking the deadlock in Geneva. It now turns out that the parleys the US Treasury Secretary, the moderate Scott Bessent, and trade representative, the more hawkish Jamieson Greer, held in that neutral location with the Chinese vice-premier He Lifeng had been scripted previously. Bessent, the former hedge fund manager, had referred to the bilateral tariff levels as effectively amounting to a trade embargo. His interlocutor in that close-door gathering in the IMF (International Monetary Fund) headquarters was China’s finance minister, Lan Fo’an.

Post-Geneva, the tariff rates facing Chinese goods are still in the region of 40 per cent, much higher than before President Trump’s second term began. If that, in itself, is not an awful load in the to-do list of negotiators, more ominously, the agreement is similar to the US-UK pact signed last week which is non-binding. In any case, it is highly improbable that President Trump’s concerns about Washington’s huge trade deficit with Beijing, which stem from excess demand and oversupply in the respective economies, could be addressed within the three-month reprieve.

In the early days of President Trump’s current term, Bessent had advocated a gradual month-by-month increase in global tariffs in order to give businesses time to adjust and governments room to negotiate better terms. President Trump wouldn’t have any of that at the time. But as his poll ratings begin to dip, the one-time champion of mega tax breaks and reduced healthcare access to low income groups has talked up taxing the rich and making drugs more affordable to the poor. As long as Bessent has the president’s ear, there is hope that the current direction of de-escalation will not go into reverse gear. For now, Bessent seems the best bet both for Washington and Beijing and for global trade in general.