The United States and China are preparing themselves for a higher stakes round of talks in Switzerland. This is a new step to address the deep-rooted economic pains that both countries have caused one another. These negotiations are scheduled to begin in just a few days. Like those long negotiations in the early years of the Trump administration, they too are likely to be protracted affairs spanning months.
Former President Donald Trump commented on the talks, stating, “They said we initiated? Well, I think they ought to go back and study their files.” He emphasized that it is irrelevant who made the first call for the discussions, asserting, “It only matters what happens in that room.”
Indeed, the continuing US-China trade war provides the context for these talks. Both countries are desperately working to restore predictability to their markets, and successful efforts to temper inflation pressures have just started to materialize. Our conversations will address a wide swath of important topics, such as the illicit fentanyl trade and China’s deepening ties to Moscow.
In early 2020, the two countries signed a “phase one” trade agreement, but plenty of other aggravating issues stayed on the table. Thornier issues on the agenda include Chinese government subsidies for key industries and establishing a timeline for eliminating remaining tariffs. Even Trump is starting to understand that US consumers are beginning to pay the price for his tariffs. All of these tariffs have increased tremendously since he took office. Still today, tariffs are at 125% with some Chinese imports receiving tariffs as high as 245%.
Stephen Olson, a trade expert, noted that “both countries are feeling pressure to provide a bit of reassurance to increasingly nervous markets, businesses, and domestic constituencies.” He added, “Neither side wants to appear to be backing down,” indicating that both nations are navigating a delicate political landscape.
The chaos wrought by this uncertainty over tariffs has already cost the US economy about $811 million and counting. In fact, for the first time in three years last quarter, we shrank as an economy mostly thanks to the negative tailwinds of these trade policies. Against this backdrop, both countries appeared to have accepted that the time had come for a candid discussion. Bert Hofman remarked that they “have taken a pragmatic view and said, ‘OK, well we need to get these talks going.’”
Chinese Foreign Ministry spokesperson Lin Jian went on record to acknowledge that these talks are indeed happening, but only at the invitation of the US. The first few meetings will likely be all about “touching base,” and sharing/identifying positions, as opposed to making major early wins.
Experts predict that a potential outcome could be a “phase one deal on steroids” that addresses various flashpoints between the two countries. However, as one observer pointed out, “Geneva will only produce anodyne statements about ‘frank dialogues’ and the desire to keep talking.”
The Trump administration has continuously asserted that Chinese negotiators are chomping at the bit because of their flagging economy. He stated, “And maybe the two dolls will cost a couple bucks more than they would normally,” suggesting that consumers will bear some costs associated with ongoing tariffs.
The negotiations taking place in Switzerland as I write this. The results will be of great importance for the two countries and for their trade relations in the coming years. Indeed, the whole international community is watching these discussions with a hawkish eye. Their goal is to see if they can create a more stable and predictable economic environment.
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