Trump’s top trade officials will meet with their Chinese counterparts this week to discuss a de-escalation of their increasingly ugly and damaging trade war. The future of the global economy is riding on their success.
The trade talks, the first in-person meeting between Chinese and American officials since the tit-for-tat tariff escalation kicked off in earnest in March, are unlikely to result in a trade deal, Treasury Secretary Scott Bessent said Tuesday. But tariffs have reached such a high level that trade between the two countries has dropped off dramatically. Any thaw in the trade war could be a welcome sign for businesses and consumers in both countries and around the globe.
The United States has placed at least a 145% tariff on most Chinese imports, and China has responded with a 125% tariff on some US imports. The last tariff-free ships — those on the water when the tariffs were announced — have almost all docked, and the first ships with goods that will be subject to tariffs are arriving at the ports.
That means businesses in China and the United States will soon face a difficult decision: pay a tariff that more than doubles the cost of the imported goods or stop selling them altogether. That means consumers are weeks away from experiencing higher prices and some shortages.
The punishing tariffs have already damaged both economies. The US economy went into reverse in the first quarter, its first contraction in three years, as businesses stockpiled goods in anticipation of Trump’s “Liberation Day” tariffs, which began in the second quarter. Meanwhile, China’s factory activity contracted at its fastest pace in 16 months in April, and the government is expected to inject the economy with another round of stimulus to support it.
Although the China-US trade standoff is by far the most aggressive, Trump has imposed large tariffs on most other countries around the world too: a 10% universal tariff on virtually all goods entering the United States, plus 25% tariffs on steel, aluminum, autos, auto parts and some goods from Mexico and Canada. So the world is watching the talks with anticipation.
Global economists at the International Monetary Fund, OECD and World Bank have all predicted that Trump’s trade war would have disastrous effects on the global economy, slowing growth dramatically in some countries, while reigniting inflation. The United States is expected to be among the hardest-hit economies as other nations, including China, retaliate against it with higher tariffs. Many US economists and large banks predict the United States could enter a recession this year.
Bessent and US Trade Representative Jamieson Greer will both travel to Geneva, Switzerland, where they will meet the Chinese officials, authorities announced Tuesday.
In an interview with Fox News, Bessent Tuesday said the talks represent a first step, but he tried to downplay expectations for a deal.
“My sense is that this will be about de-escalation, not about the big trade deal … but we’ve got to de-escalate before we can move forward,” Bessent said.
Despite ongoing tensions, both countries have signaled for several weeks that the current standoff is unsustainable. Bessent and Trump have both acknowledged the tariffs are too high. In an interview with NBC News last week, Trump said he would lower tariffs on China “at some point.”
China has largely stood firm against Trump, denying his refrains that the countries were in active negotiations — a denial that Bessent concurred with under oath in congressional testimony Tuesday. But China shifted its tone somewhat last week, saying it was reviewing proposals by the United States to begin trade talks.
Wall Street welcomed the news: Markets rose on reports of the talks. Dow futures were up more than 200 points, or 0.6%. Futures for the broader S&P 500 rose 0.7% and Nasdaq futures were 0.8% higher.
As Chinese authorities frequently say in their statements about Trump’s tariffs: No one wins in a trade war. That has become evident in recent weeks as high tariffs imposed significant damage on both economies and effectively frozen trade.
The number of cargo ships headed from China to the United States fell 60% in April, according to Flexport, a logistics and freight forwarding broker. JPMorgan estimates Chinese imports into the United States will plunge by as much as 80% by the second half of the year.
”A 60% decline in containers means 60% less stuff arriving,” Flexport CEO Ryan Petersen told CNN’s Pamela Brown Tuesday. “It’s only a matter of time before they sell through existing inventory, and then you’ll see shortages. And that’s when you see price hikes.”
The Port of LA had expected 80 ships to arrive in May, but 20% of those have been canceled, Gene Seroka, executive director of the Port of Los Angeles, told CNN Tuesday. Customers have already canceled 13 sailings for June.
“This week, we’re down about 35% compared to the same time last year, and these cargo ships coming in are the first ones to be attached to the tariffs that were levied against China and other locations last month,” Seroka said. “That’s why the cargo volume is so light.”
Despite the increasingly dire warnings and economic turmoil, the two countries remain quite far from a deal. Both sides have dug in, saying they’ll need major concessions at the outset to begin negotiations. Bessent has said it could take two to three years for trade to normalize with China.
So much is riding on the talks in Switzerland. Even without a trade deal in hand, the face-to-face discussions are encouraging. With the two countries inflicting so much damage on themselves, they have left very little choice other than to start the thawing process.
“At some point, I’m going to lower them because otherwise you could never do business with them,” Trump said in an interview with NBC’s “Meet the Press with Kristen Welker,” which taped on Friday. “They want to do business very much … their economy is collapsing.”
Read the full article here