Trump team signals possibility of lower tariffs on PRC goods; Xi on climate; China working the EU; China-Russia financial sanctions evasion
Earlier today I published this week’s episode of Sharp China - Bessent and an ‘Unsustainable’ Path; Making Sense of Hourly Madness; The PRC’s Message to the World; A Note on Canada. We discussed Tuesday’s signals that the Trump administration may seek to deescalate its trade war, why Beijing may see it as confirmation that their patient approach is working, and questions about what’s next as the Trump messaging on trade changes by the day.
And then today, amidst all the noise about where the US-China trade war may be heading, one “senior official” told the Wall Street Journal that:
the China tariffs were likely to come down to between roughly 50% and 65%. The administration is also considering a tiered approach similar to the one proposed by the House committee on China late last year: 35% levies for items the U.S. deems not a threat to national security, and at least 100% for items deemed as strategic to America’s interest, some of the people said. The bill proposed phasing in those levies over five years.
Administration officials then said that the US would not cut the rates unilaterally, but no one has yet articulated how they are going to get the Chinese side to cut their rates simultaneously, or when there may actually be talks. I do not see any scenario in which Xi agrees to cut first, or even simultaneously, without extracting something from the US side. Xi waiting even five minutes longer than Trump to reduce the tariffs would be a win for him domestically and globally.
As we discussed on Sharp China, Trump seemingly negotiating with itself in public is probably not going to help convince other countries to agree to tough measures on the PRC while they have no idea where the US and China will ultimately land.
Are likely impending shortages in the US, as the Flexport CEO discussed on Twitter today, among the factors motivating President Trump to look for a way to walk things back?
Summary of today’s top items:
1. Trump team signals possibility of lower tariffs on PRC goods
2. US Treasury Secretary calls out China in speech about the IMF and World Bank - Secretary Bessent told the audience at the Institute of International Finance that:
China, in particular, is in need of a rebalancing. Recent data shows the Chinese economy tilting even further away from consumption toward manufacturing. China’s economic system, with growth driven by manufacturing exports, will continue to create even more serious imbalances with its trading partners if the status quo is allowed to continue.
China’s current economic model is built on exporting its way out of its economic troubles. It’s an unsustainable model that is not only harming China but the entire world.
China needs to change. The country knows it needs to change. Everyone knows it needs to change. And we want to help it change—because we need rebalancing too.
China can start by moving its economy away from export overcapacity, and toward supporting its own consumers and domestic demand. Such a shift would help with the global rebalancing that the world desperately needs...
The IMF must be a brutal truth-teller, and not just to some members. Instead, today’s IMF has been whistling past the graveyard. Its 2024 External Sector Report was entitled “Imbalances Receding.” This pollyannish outlook is symptomatic of an institution more dedicated to preserving the status quo than asking the hard questions...
In line with its core mandate, the IMF needs to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades.
He also said that the World Bank “treating China—the second-largest economy in the world—as a “developing country” is absurd”, and declared that “no one who financed or supplied the Russian war machine will be eligible for funds earmarked for Ukraine’s reconstruction.” That would seem to rule out China.
3. Xi’s speech to the Leaders Meeting on Climate and the Just Transition -Xi spoke via video link to the Leaders Meeting on Climate and the Just Transition. According to the Guardian it was “a closed-door virtual meeting with the UN secretary general, António Guterres, Brazil’s president, Luiz Inácio Lula da Silva, the European Commission president, Ursula von der Leyen, and about a dozen other heads of state and government to discuss the climate crisis”. No one from the US attended.
Xi pledged that “no matter how the international situation changes, China’s actions to tackle climate change will not slow down, its efforts to promote international cooperation will not weaken, and its practice of building a community with a shared future for mankind will not stop. China is willing to work with all parties to earnestly fulfill the principle of common but differentiated responsibilities, do its best, unite, and cooperate to promote the building of a clean, beautiful, and sustainable world.”
He also took a swipe at the Trump administration:
Xi Jinping pointed out that this year marks the 10th anniversary of the conclusion of the Paris Agreement and the 80th anniversary of the founding of the United Nations. At present, the world is experiencing accelerating changes unseen in a century, and human society is at a new crossroads. Despite the fact that certain major powers are indulging in unilateralism and protectionism, seriously impacting international rules and the international order, history always moves forward through twists and turns. As long as we maintain firm confidence and strengthen unity and cooperation, we can overcome the headwinds and push global climate governance and all progressive causes of humanity toward long-term and stable advancement.
4. China to drop sanctions on members of the European Parliament? - Noah Barkin of the Rhodium Group broke the news earlier today that “China may be preparing to lift its sanctions on members of the European Parliament (MEPs) as early as next week”. Chinese officials apparently hope that dropping those sanctions, though not the other ones on think tanks and researchers, might help revive negotiations over the EU-China Comprehensive Agreement on Investment (CAI). That seems unlikely, but it would be an interesting move by the Chinese side. Noah has long written the excellent Watching China in Europe newsletter, and now he has relaunched it on Substack. I highly recommend it.
5. China and Russia build a payments system to avoid sanctions - Reuters reports that big “Russian banks have set up a netting payments system dubbed "The China Track" for transactions with China” that was “ set up by major sanctioned banks and involves a web of intermediaries registered in countries that Russia considers friendly”.