Why the US and China are extending the truce in their trade war | DW News

Key Concepts:

• US-China Trade War
• Tariffs (US and China)
• Trade Deficit
• Trade Negotiations
• Rare Earth Minerals
• Political Capital
• Reciprocal Tariffs
• Market Economy vs. Non-Market Economy
• TikTok
• Fentanyl
• Trade Imbalances

US-China Trade War Truce Extension

• The US and China have extended a truce in their trade war until mid-November, providing more time for negotiators to reach a trade deal.
• President Trump signed an executive order postponing increased US import levies, and Beijing announced a pause on its own tariffs.

Escalation and De-escalation of Tariffs

• Donald Trump initiated tariff hikes on Chinese goods, fulfilling a campaign promise.
• In April, Washington introduced 145% tariffs on Chinese imports, which Beijing countered with a 125% rate.
• In May, the US scaled back its rate to 30%, while China cut its rate to 10%.

Impact of Tariffs

• Trump has narrowed the US trade deficit and generated tens of billions of dollars in revenues through tariffs.
• The US has struck eight framework tariff agreements with the EU, Japan, Britain, South Korea, Vietnam, Indonesia, Pakistan, and the Philippines.
• China has proven difficult to reach an agreement with.

China's Response and Market Diversification

• China exports three times as much to the United States as it imports.
• China is finding alternative markets, with exports rising 7.2% in July.
• Exports to the EU grew more than 9%, while exports to the US fell 22% last month compared to a year earlier.
• Shipments to Southeast Asia rose 17% over the same period.

Leverage and Critical Minerals

• The US has leverage due to its manufacturing of high-tech AI chips that China needs.
• China has leverage through its dominance in critical minerals, specifically rare earth minerals.
• The US balked at the 145% tariffs due to China's decision to restrict or withhold shipments of rare earths.

Political Capital and the Trump-Xi Meeting

• Many believe both sides are delaying a comprehensive deal until Trump meets Chinese President Xi Jinping in person, likely later in the year.
• The political capital of shaking hands on a successful trade deal is worth more than the economic cost for both leaders.

Importance of a Deal and Trump's Perspective

• Clifford Kunan emphasizes the need to separate the political from the economic aspects.
• Donald Trump likes dealing with other powerful men and seeks a handshake deal with Xi Jinping for political theater.

China's Importance and Reciprocal Tariffs

• China is crucial, which is why it is getting a reprieve from reciprocal tariffs imposed on other US allies.
• Treasury Secretary Scott Bessant recognizes China's importance but notes that it is not a market economy, making negotiations difficult.
• Bessant has stated that the tariffs will ultimately be removed to address imbalances in global trade.

Key Sticking Points in the US-China Trading Relationship

• TikTok: Trump wants TikTok to be sold to a US company from its Chinese owner, Bance, which China opposes.
• Fentanyl: The US wants action taken on the supply of fentanyl to the US market.
• Trade Imbalances: Concerns about trade imbalances and the lack of a level playing field for US businesses in China.

Expected Outcomes of the Talks

• The trade talks are expected to broaden beyond specific issues like rare earths, TikTok, and fentanyl.
• Political elements will be included, and the talks may be used to recalibrate the relationship between the US and China.
• The goal is to find areas of agreement to present a comprehensive deal, as Trump desires the optics of a deal with China.

Conclusion

The US-China trade war truce provides a window for negotiations, but significant sticking points remain. The talks are likely to expand beyond economic issues to include political considerations, with both sides seeking to leverage their strengths. The potential for a Trump-Xi handshake deal is a significant driver, but the underlying economic and political complexities make a comprehensive agreement challenging.