Surprise US-China trade de-escalation; Rare earths; National security white paper; China-Latin America Forum in Beijing
I am attending the US Chamber of Commerce China Business Conference on Tuesday so there will be no newsletter on May 13th, but I will publish an episode of Sharp China that we recorded this afternoon on the US-China trade drama.
I am late to writing about this, and all of you must be a bit sick of the news about the surprising outcome of the US-China trade talks in Geneva over the weekend in which both sides agreed to significantly reduce tariffs for ninety days while establishing a formal dialogue mechanism to discuss trade and economic issues. The average rates are still high, perhaps an average of 40+% on PRC goods and 30+% on US goods, but I think people are still trying to figure out the exact amounts.
Both sides looked to have blinked but I think the US side blinked harder. In addition to the significant reduction of tariffs rates on PRC goods imported into the US for ninety days, the establishment of a dialogue mechanism with designated leadership (Bessent and Greer on the US side, He Lifeng on the Chinese side) is something that will make PRC policymakers very happy. They love dialogue mechanisms.
Along with the tariff cuts China also agreed that it would “adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025”. That sounds like it means any export controls on rare earths and rare-earth magnets announced since April 2nd. That would be a meaningful concession from the PRC side, and we should know soon if that is what that language means as US firms who need those goods rush to make purchases.
The Chinese side has justification for saying things like “China’s previous resolute countermeasures and fighting stance have been very effective; the retaliatory measures did indeed have a significant impact on the U.S., and only then did the U.S. government reduce the tariffs to the level of the base tariff following the talks”. However, there is no doubt a sense of relief that the effective US trade embargo is pushed out at least ninety days while the two sides engage in dialogue.
The PRC also looks more responsible to other global actors, and they may believe that driving down the US tariff rates and starting a dialogue will help prevent some other countries from agreeing to US demands about restrictions on Chinese-origin goods and transshipments. It may seem even riskier for a third country to anger Beijing when they do not know how the US-China dispute will resolve.
I also will bet that they look at the ninety day pause as just the start, and that Trump will extend it, just as he keeps extending the TikTok talks.
In comments to the press Monday, President Trump suggested he may have a call with Xi Jinping soon. I do not know if that is something under active discussion, or if this is another appeal for a call, but the Chinese side should harness the momentum and arrange a call. Who knows what else Xi might get in a friendly conversation.
On Monday the State Council released a white paper on national security in the New Era - 新时代的中国国家安全. In the “Q&A” with a leading official of the relevant department that usually accompanies these types of releases, that unnamed official said this in response to the question “Recently, the U.S. imposed high tariffs on China, and China responded firmly, intensifying the China–U.S. trade war. How does China view China–U.S. relations and better safeguard its right to development?”:
Pressure and threats are not the correct way to deal with China. Safeguarding the right to development is one of the red lines of China’s national security, and upholding national interests is a basic requirement. As the White Paper points out, China neither covets others’ interests nor envies their development, but will never give up its legitimate rights and will not yield an inch on principle. China has the resolve, confidence, and capability to cope with U.S. tariff shocks, remains committed to the multilateral trading system, and defends international fairness and justice. China will turn pressure into impetus, viewing the U.S. challenge as a strategic opportunity to accelerate the construction of a new security pattern and modernize its national security system and capabilities.
As nice as it may to be have a pause in the trade war, this white paper is a reminder that the structural challenges in the US-China relationship go far beyond trade.