Sudden thaw in trade war vs-china, but the geopolitical tensions remain

With a temporary reduction of no less than 115 percentage points of their mutual import duties, China and the United States have made a start this weekend with the de-escalation of the trade war. He started when US President Donald Trump charged all products from China on 2 April by 34 percent and both countries then came back and forth with a barrage of criminal taxes. During discussions in Geneva, Switzer, American and Chinese delegations managed to come to a joint explanation that came as a positive surprise for many.

China and the US agreed to take the next ninety days to shape a trade agreement. In the meantime, the US reduced their import rates from 145 to 30 percent. This gives China the ‘regular’ treatment that the Trump government also applies to the rest of the world (a ‘basic tax’ of 10 percent). In addition, an earlier penalty tax of 20 percent remains in force due to China’s assumed share in the US fentanyl crisis.

China is the most important exporter of raw materials for this synthetic drug, which has made millions of people addicted in the US and demands thousands of deaths a year. According to Washington, China does not do enough to tackle that problem. Sector -specific levies on, for example, steel and cars, for example, remain intact, just like a 120 percent levy on all mail packages. China, in turn, reduces the import tax on American products from 125 to 10 percent.

Because both countries also set up commercial levies on each other’s goods prior to Trumps second term, an ‘effective’ American import tax of approximately 40 percent on Chinese products and of, inversely, 25 percent on American, Capital Economics consultant remains on balance. That is still considerably higher than before Trump took office.

Diplomatic

Shares, the dollar and the oil price rose enormously thanks to the temporary de-escalation, while the gold price returned 3 percent. European shares immediately opened percentages higher on Monday, especially the tech sector benefited strongly. With a plus of 12 percent, container operator Maersk was one of the biggest winners. Also in the US the rates went up immediately: the course of Tech company Apple, for the production of telephones and laptops depending on China, rose by more than 6 percent.

However, the damage caused by Trump in a month does not be repaired at the touch of a button. The international transport world has been deposited in chaos thanks to the taxes, and that also applies worldwide to many exporting and importing companies. The uncertainty about what can be expected of the US has crawled deep into the economic system. The taxes may be off the table for the time being, the distrust is certainly not.

The agreements that came out on Monday morning were accompanied by a joint statement that is in stark contrast to the incitant tone of the past weeks. Last week Trump said that China has been « selling » the US for years in the field of trade. And Minister of Finance Scott Bessent, who was in Geneva this weekend, said in April in the margin of an IMF meeting that China has been pursuing a « worldwide disruptive policy » with his export-driven economy.

With announcements of import duties, the White House called the American trade deficit – to a large extent a shortage with China – invariably a threat to ‘national security’ and thus gave the trade war a strong geopolitical dimension. China, in turn, accused the Trump government of « extortion » and of « disruption » of the world economy.

But this Monday suddenly sounded classical, experienced diplomatic language. In the Common Communiqué, the « importance » of the « bilateral economic and trade relationship » was emphasized, not only for both countries, but also for « the world economy », with which the Trump government suddenly seemed to recognize a broader responsibility than purely the national interest. The communiqué speaks of a « sustainable, long -term and mutual favorable » trade relationship. In the spirit of ‘mutual respect’, a diplomatic process was also agreed for further conversations.

The « disconnecting » of the American and Chinese economies is something « neither of them wants, » said Bessent. « What had happened with these very high taxes in fact amounted to a (trade) embargo – and nobody wants that. We want to trade. » Bessent also said that for the first time China seemed to understand how disruptive the fentanyl crisis is for American society.

The White House speaks of a « historical agreement » while that word does not occur in Chinese reporting

Whether or not ‘agreement’

Despite that sudden unity, there is a striking difference in the way in which both sides present the outcome of the conversations in Geneva. On the site of the White House there is an ‘agreement’ – historically even – while that word does not occur in the Chinese official reporting.

« The Americans are under political pressure to show a victory, » say Matteo Giovannini of the Chinese think tank Center for China and Globalization against the South China Morning Post. « China sees negotiations more as a strategic process to steer bilateral rivalry in the right direction. »

What exactly comes to the table during that process is still unclear. Bessent said on Monday to expect that the conversations will continue ‘in the coming weeks’. He told news channel CNBC that the Chinese « are now taking the stopping of the influx of fentanyl raw materials seriously. »

Bessent also sees room for agreements with China about the purchase of American goods and services. In 2020, during Trumps first term as president, Beijing and Washington also agreed: China would import extra from the US for $ 200 billion in two years. At the time, little of that ended up, among other things because of the Corona Pandemie, but also because many of the detailed agreements in that agreement were not realistic. China could also make American companies easier to enter the Chinese market.

President Trump said on Monday at a press conference that China would « open to American companies. » He gave few details about that development, but said that it was « perhaps the most important thing » that came from the trade discussions between the two superpowers. « We don’t want to hurt China, » said the president.

For the time being, the moderate, more free trade and globalization -oriented faction of Bessent seems to have gained influence in the White House, with the diplomatic mores that go with it. However, whether this trend continues. That skepticism can also be seen on Chinese social media. « Those Americans, certainly those crazy Trump, are not reliable. Be careful for their fickle, » Reuters news agency quotes a reaction to the Chinese platform Weibo.

MMV from Mark Beunderman

To share

Mail the editors