On May 12th, a joint statement was issued by the United States and China, announcing the cancellation of the previously imposed retaliatory tariffs, retaining only a 10% base tariff, and implementing a 90-day suspension on a 24% tariff. This phased achievement is viewed as a signal of easing Sino-US trade tensions. However, many questions persist, such as how China and the US will maneuver during the 90-day tariff suspension period? What scenarios might unfold after 90 days? With the current US debt crisis nearing and many other tariff negotiations unresolved, the future Sino-US negotiations still contain numerous variables.

To explore the logic and future direction behind the talks, Guan.cn connected with Ding Yifan, former deputy director of the Institute of World Development at the Development Research Center of the State Council, to analyze the strategies and challenges faced by the Chinese side in these negotiations.

Guan:

From the societal response, the outcomes of this Sino-US meeting seem to exceed expectations. Mr. Ding, how do you view this interim victory in the Sino-US economic and trade discussions?

Ding Yifan:

There are several aspects of this Sino-US economic and trade meeting result that have exceeded expectations. First is the speed with which China and the US began talks. Generally, negotiations as a strategic tool require a longer period, but this time, results were achieved rather quickly. Secondly, the representatives from the Trump administration agreed to impose only a 10% base ‘reciprocal tariff’, with the rest to be discussed after 90 days. This decrease from the previously mentioned 145% tariff was indeed surprising.

Before and after the start of negotiations, Trump has been publicizing various rumors, boasting about how ‘China wants to talk to us,’ ‘We’ve been negotiating well,’ etc. To some extent, this indicates Trump’s eagerness to reach an agreement with China. Why is he so eager? Simply put, China’s ‘what you impose, we impose’ reciprocal counteraction makes Trump very uncomfortable, so he’s in a hurry to find a way out.

If you look at the White House website, it seems to depict a victory—this is what Trump wants. It reminds us of recent events in India, where even after being hit hard by Pakistan, Modi claimed in his speech that ‘the Pakistani air force fell before us like straw.’ Trump is similar, believing China to be the biggest obstacle; once this is overcome, he believes the global trade war he instigated will be more manageable. Thus, he urgently wants to handle this matter (negotiate with China).

Of course, for China, negotiations also release a relatively positive signal to the market. Currently, both sides have imposed a 10% base tariff, with further negotiations to follow. Recently, Britain and Trump reached an agreement on a 10% base tariff as well.

However, the current US tariffs on China are still very unfair. Besides the 10% base tariff, there is an additional 20% tariff imposed on China due to the fentanyl issue, which is clearly an unequal tariff. Naturally, the Ministry of Foreign Affairs has officially responded to this issue:

The US has unjustifiably imposed two rounds of tariffs on China under the pretext of the fentanyl issue, prompting China to take countermeasures, including tariffs and non-tariff actions, to firmly protect its legitimate rights. These counteractive measures remain effective.

From a certain perspective, I believe that China and the US may not be at the point of tearing apart relations immediately. For China, the impact of the trade war on us is far less than the impact on the US, so we can fully maintain our stance in negotiations and continue to demand concessions from the US over the fentanyl issue. For Trump, enduring another month is essentially unbearable. Initially, the US imposed such high tariffs on China, only to later retract them all, showing that China actually won the first round. Overall, I feel that China does not want to fully break with the US at this stage, and still wants to leave some room for Trump to save face.

Guan:

From April 2nd, when Trump announced the ‘reciprocal tariff’ policy, to the joint statement issued on May 12th, Trump shifted from an initially very tough stance to eventually softening, expressing ‘the Chinese side will soon call us,’ then leaking ‘we are constantly in contact with the Chinese side, China wants to talk to us,’ and finally backing down. How should we evaluate and respond to the Trump administration’s characteristic of ‘changing attitudes faster than flipping a book’? I notice many people are concerned that Trump might continue to change his stance in the future.

Ding Yifan:

Trump’s greatest characteristic is unpredictability, so we shouldn’t celebrate too early. Do not forget that the negotiations are just a temporary pause; only a 10% tariff will be in place during the three-month suspension period. But what happens after three months? Will the US impose other conditions? If so, Trump will certainly bring them back into play. Therefore, this is an unreliable situation because Trump never adheres to agreements.

Thus, we must be prepared for Trump to return at any time. A foreseeable basic Trump approach would be: first, to groundlessly accuse China; second, to use this unfounded excuse to re-impose tariffs on China.

It is important to understand that Trump’s reason for backing down is that the costs of continuing to impose tariffs are unbearable for the US, while China is just the opposite. However, there’s a misconception, or rather a misconception held by Americans, that trade is China’s Achilles’ heel, not the US’s. From this perspective, simply applying the logic of ‘forgive when possible’ will not suffice in dealing with someone like Trump.

Guan:

The Sino-US joint statement mentions ‘24% of the tariffs will be suspended during the initial 90 days.’ Previously, Trump also negotiated a 90-day suspension with many countries. In your opinion, what should China’s most important grasp or core objective be in Sino-US trade negotiations within these 90 days?

Ding Yifan:

A crucial matter is the US debt issue, which is bound to arise within the 90 days—a bargaining chip we can use in negotiations. Currently, the Trump administration needs substantial financing to get past the debt hurdle, but given Trump’s poor reputation, his financing cost is relatively high. Moreover, issuing debt in the US is now difficult; without high-interest rates, it is virtually impossible to borrow money. If Trump continues struggling to borrow money, a debt crisis might erupt, so he must find a way over this hurdle.

Actually, during the 2008 crisis, the US faced a similar issue, and China helped the US out. At that time, the Bush administration maintained relatively good relations with China, so China lent the US a hand. But will we still help the Trump administration now? To some extent, this still depends on his attitude, though I believe today’s China is unlikely to accommodate the US as much as before.

Guan:

Previously, the Japanese have also attempted to influence or catch the US off guard by hinting at the possibility of ‘selling US debt.’

Ding Yifan:

Indeed, because China and Japan are the US’s top two creditors, you could say both hold this ‘Achilles’ heel’ concerning US Treasury bonds.

Graph showing changes in the holdings of major US debt holders. The colors represent the ‘creditors’ from left to right as Japan, China, UK, Luxembourg, Cayman Islands, Canada, Belgium.
Graphic by The Financial Times

Guan

:

The China-U.S. joint statement mentions the establishment of a trade and economic mechanism between both countries. What topics and details do you think are worth noting in the ongoing China-U.S. trade negotiations compared to the first China-U.S. trade war?

Ding Yifan

:

During the previous trade war with Trump, our experience was still limited, so even though we made many commitments, Biden continued the same tariff policies when he came to power. I believe after the last engagement with the Trump administration, we are now more experienced and better prepared, allowing us to respond more calmly to Trump’s ‘blackmail’ and ‘extortion.’ The most important thing is to clearly recognize the current high uncertainty of the Trump administration, and strategic judgment on this basis is crucial.

Guan

:

Besides the U.S. debt mentioned earlier, what other means can we leverage in the trade negotiations with the U.S.?

Ding Yifan

:

The U.S. is heavily reliant on China’s supply chain. For instance, the U.S. demands that China relax rare earth controls, or else its downstream industrial chain could collapse. China now has a grip on the American industrial chain with the supply of rare earths, and relaxing controls is not something that can be easily done. Even if controls are to be eased, it should be reciprocal, like the U.S. lifting its chip ban on China first.

Additionally, concerning the fentanyl issue, which is clearly a pharmaceutical matter, if the U.S. asks China to cooperate in cracking down on illegal vendors, it is feasible. However, Trump linking this issue with tariffs is quite unreasonable. Therefore, I believe many issues require the U.S. to clarify its stance.

Currently, it seems like we might feel satisfied if Trump makes concessions on tariffs, but he will likely push for concessions on other issues. Sometimes, indeed, we have a ‘forgive when possible’ mindset, which is a tradition of Confucianism.

Yet, I must remind everyone: we are currently dealing with an American government with no credibility. While you might think of adopting a ‘forgive when possible’ approach, Trump sees it as a sign of weakness and incompetence. This is Trump’s style. Hence, I believe in these issues and in future China-U.S. negotiations, China must have a high level of awareness.

From May 10 to 12 local time, high-level trade and economic talks between China and the U.S. were held in Geneva, Switzerland. Pictured is the Chinese delegation leaving the meeting venue.
Reuters

Guan

:

It is now clear to the international community that after the U.S. imposed retaliatory tariffs on China, China did not yield and has successfully pushed back against the U.S. tariff offense. Mr. Ding, what do you think the stage victory achieved by China signifies for the international community?

Ding Yifan

:

Even U.S. media admits that China’s firm stance against the U.S. has yielded results, forcing the U.S. to respect China. The international community has taken note of China’s response to the U.S., which is very important. Only a strong counter-response can win respect; otherwise, there is no respect to be gained.

However, I believe there is a high probability that Trump will continue to use tariffs in dealings with China, as we have not yet inflicted enough pain on the U.S. The U.S. has not truly felt our challenge and thinks it’s easy to negotiate. While we might think that Trump will appreciate China’s concessions, he will not.

This negotiation is certainly a stage victory, as the U.S. has made significant concessions from its high-tariff ‘extortion.’ But it’s necessary to point out—we should not feel overly proud of a single victory and assume Trump conceded and we won. What if Trump strikes back against China again? So, it’s essential to remain clear-headed about the Trump administration.

Editor: Zhongxiaowen