Is a US-China trade war truce imminent? 5 things to know
Switzerland talks mark start of 'difficult dance' between superpowers
U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are due to discuss trade in Switzerland. (Nikkei montage/Source photos by AP)
HONG KONG -- Top U.S. economic officials are set to meet Chinese counterparts in Switzerland to discuss the tariff war that has roiled global markets, tanked consumer confidence and sharply reduced shipments of goods between the superpowers.
This marks the countries' first known high-level exchange since U.S. President Donald Trump started raising tariffs on China in February.
A cycle of rapid retaliation sent U.S. tariffs on Chinese goods soaring to 145% by mid-April, while Beijing imposed 125% duties on American products. Trump subsequently said he would be willing to lower the tariffs "at some point."
Now that the rivals are coming to the negotiating table over the next few days, is a deal around the corner? Or is a tariff climbdown still far off?
Here are the five things to know.
Why is Washington seeking to de-escalate with China now?
Trump has faced a mounting political and economic backlash since April 2, his so-called Liberation Day, when he unveiled steep "reciprocal" tariffs on China and many other countries.
First, the U.S. financial markets took a severe hit, marked by an unusual combined sell-off of U.S. stocks, bonds and dollars as investor confidence in American assets was shaken.
Stocks rebounded once Trump backtracked and issued a 90-day pause on most of his tariffs on April 9 -- with the exception of China. A slew of Wall Street banks have warned that his tariff policy risks tipping the country into a recession this year. J.P. Morgan currently puts the probability of that at 60%, up from an earlier estimate of a 40% chance.
Even as the markets have regained some stability, flows of goods between China and the U.S. plunged sharply in the past few weeks as American buyers paused orders. Big retailers such as Walmart and Target warned of goods shortages and price spikes during private meetings with Trump, according to CBS News.
Beijing, for its part, struck a defiant tone -- one that some believe forced Washington to revise its playbook.
"So far, all of the Trump team's tariff policies against China have failed to achieve their pre-determined strategic goals," said Gao Jian, senior researcher at the Shanghai International Studies University. "Re-engaging with the U.S. now is conducive to stabilizing the world economy. It is also in line with China's economic interest."
Shipping containers from China are stacked at the Port of Los Angeles, California, on May 1. © ReutersHow soon, and by how much, will the U.S. and China lower their tariffs?
While U.S. Treasury Secretary Scott Bessent said in late April that he expects de-escalation "in the very near future," analysts warn the process could be drawn-out.
Bessent's upcoming meeting with Chinese Vice Premier He Lifeng in Switzerland "is just a preliminary step in what will inevitably be a protracted and difficult dance between the U.S. and China," said Stephen Olson, senior visiting fellow at the ISEAS-Yusof Ishak Institute in Singapore.
To an extent, both sides have already made some concessions without walking back on the headline tariff rates.
Mirroring the U.S.'s partial exemption of smartphones and electronic products from the 145% tax, China in recent weeks also quietly assembled a list of products -- from chips to medicines and aircraft engines -- that will not be hit by its 125% charge, Nikkei Asia has reported.
Michael Hirson and Houze Song from 22V Research, a New York-based investment advisory firm, said that if Trump is willing to roll back tariffs without major pre-conditions, Beijing will reciprocate. Alternatively, they said Beijing might wait if the U.S. demands that China make a concession first.
If both parties refuse to blink, they may stick to using targeted exemptions from the sky-high tariffs to manage economic pains, added Hirson and Song. "It may prolong the wait for a broader rollback of tariffs, and likely means an ongoing tit-for-tat through nontariff measures such as export controls."
Some economists are more hopeful about a gradual tariff rollback once talks kick off.
"We believe that both the U.S. and China will want a comprehensive deal," said Chetan Ahya, chief Asia Economist at Morgan Stanley, while acknowledging that "the discussions are likely to be complex and will take time to complete."
He sees a scenario in which the U.S. may lower its trade-weighted tariffs on China to 60% by the end of June, before further cutting to 34% by year-end, reflecting the removal of the 20% tariffs related to fentanyl issues. Yet, even this would leave tariffs on China higher than the 10% baseline reciprocal levies most other countries face, and could still obstruct much trade.
Is a "grand bargain" between China and the U.S. on the table?
Since Trump's presidential campaign, some have considered the possibility that he might seek to fundamentally reshape the U.S.-China relationship with a sweeping deal that addresses their numerous differences. But many experts say this is unlikely at this stage. Discussions on issues such as tensions over Taiwan or the Trump administration seeking to delist Chinese stocks from U.S. exchanges may be off the agenda.
For Arthur Kroeber, founding partner of Gavekal Dragonomics, a research firm, any substantial deal would require Washington to unwind curbs on Chinese companies' access to U.S. businesses and technology and allow them to invest in the country at scale, he said.
"A real authentic deal that significantly changes the terms of engagement between the U.S. and China is one which recognizes Chinese companies can have a significant role to play in direct investment in the U.S.," said Kroeber. He sees this scenario as highly improbable due to the prevailing narrative on China adopted by Washington.
More realistically, he suggested, the U.S. and China may strike an "essentially cosmetic" deal, where both sides get a reduction of tariffs in exchange for some kind of managed trade.
U.S. President Donald Trump and Chinese President Xi Jinping meet in Osaka in 2019. Some have speculated that Trump's second term might bring a grand bargain that could reshape ties between the superpowers. © ReutersWhat are the biggest obstacles to an agreement?
Many observers believe that Chinese officials are still unsure what the Trump administration really wants, and what they could offer in return.
Bert Hofman, director of the East Asian Institute at the National University of Singapore, said just gaining clarity on the U.S. agenda would be a positive outcome for Beijing. The Trump administration has put forth various objectives ranging from a complete decoupling from China to forming alliances with other countries against China and ending bilateral trade deficits.
Ahead of the Switzerland talks, Bessent said the U.S. and China have "shared interests" and the U.S. isn't seeking to decouple. "What we want is fair trade," he said.
Analysts also wonder how much rein Trump has given Bessent and U.S. Trade Representative Jamieson Greer, who will also attend the meetings, to steer trade policy. Others say distrust and incompatible demands will block any off-ramp.
Washington in recent years has repeatedly urged Chinese policymakers to stimulate domestic consumption rather than relying on an export-driven growth model. Beijing has rejected most international criticism about its industrial overcapacity.
"The rivalry remains fundamentally unresolved, with both sides maneuvering for advantage while avoiding the optics of capitulation," said Craig Singleton, senior director of the China Program at the Foundation for Defense of Democracies, a conservative think tank in Washington. "Both sides are still testing the waters, each demanding the other move first."
What does it mean for the world if the trade stalemate persists?
The world economy is in for a shock if the U.S. and China keep prohibitive tariffs in place.
The effective trade embargo between China and the U.S., if it lasts, could reduce global goods trade by as much as 1.5%, the World Trade Organization warned in April. The International Monetary Fund last month also lowered its growth forecast for the world economy to 2.8% this year, down from its January estimate of 3.3%.
While American consumers are likely to face empty shelves and higher prices, in China, an excess of goods originally bound for the U.S. will need to be absorbed either at home or by other countries. This is expected to worsen deflationary pressure that has haunted the Chinese economy for years.
Some say China has the upper hand, though, and a greater capacity to endure economic hardship.
"The Chinese calculation basically is it'd be easier for China to manage deflation than it'd be for the U.S. to manage stagflation politically," said Gavekal's Kroeber.
A stalemate would also be bad news for other Asian countries. Many of them, in particular Vietnam and Cambodia, are reliant on U.S. demand as well as inputs shipped from China. "That means they are caught between a rock and a hard place," said Alicia Garcia-Herrero from Natixis.
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