U.S.-China trade talks at a standstill

[WORLD] Recent U.S.-China trade negotiations have hit a stalemate, with U.S. Treasury Secretary Scott Bessent stating progress will likely require direct talks between Presidents Donald Trump and Xi Jinping. The two nations agreed to a 90-day pause in reciprocal tariffs on May 12, temporarily lowering U.S. duties on Chinese goods from 145% to 30% and China’s tariffs from 125% to 10%. However, this truce leaves unresolved core disputes over China’s state-driven economic policies and fails to address structural imbalances like overproduction and limited market access for U.S. firms.

Since the mid-May agreement, the U.S. has turned its focus to trade talks with the EU, Japan, and India, though tensions persist. A U.S. federal appeals court recently reinstated Trump-era tariffs after a lower court deemed them unlawful, adding legal uncertainty to ongoing negotiations. Bessent emphasized that Japan and other partners remain engaged in “good faith” discussions, with a Japanese delegation set to meet U.S. officials in Washington.

The temporary tariff reduction spurred a global market rally, but economists warn the reprieve is fragile. Yale Budget Lab estimates U.S. consumers still face an average 17.8% effective tariff rate—the highest since the 1930s. Meanwhile, China’s April factory activity plummeted at its fastest rate in 16 months, prompting Beijing to accelerate stimulus measures.

Implications

For Businesses

Companies face prolonged uncertainty as the 90-day window offers little time to resolve deep-seated issues. Supply chains may remain disrupted, particularly for industries reliant on Chinese manufacturing, while U.S. exporters to China grapple with a 10% base tariff. Sectors like tech and pharmaceuticals could see heightened scrutiny amid China’s proposed industrial policy expansions under “Made in China 2025”.

For Consumers

Short-term tariff relief may modestly ease inflation pressures in the U.S., but prices for electronics, apparel, and machinery are unlikely to return to pre-trade-war levels. In China, reduced access to rare-earth minerals—a retaliatory measure paused under the truce—could resurge if talks falter, impacting global tech production.

For Policy

The U.S. strategy appears reactive, lacking a clear roadmap for addressing non-tariff barriers or China’s state subsidies. Multilateral institutions like the WTO risk further erosion if bilateral deals dominate. Analysts note the temporary truce may weaken U.S. credibility in future negotiations, as concessions could incentivize adversarial tactics.

What We Think

The U.S.-China détente reflects transactional diplomacy rather than strategic alignment. While the tariff pause prevents immediate escalation, it postpones tough conversations about intellectual property theft, currency manipulation, and China’s state-led economic model—issues central to the trade war’s origins.

The emphasis on Trump-Xi diplomacy carries risks. Personal rapport between leaders has historically yielded short-term gains (e.g., the 2019 Phase One deal) but often sidesteps institutional mechanisms needed for enforceable, long-term solutions. The 90-day window also seems insufficient for complex negotiations; the EU and China, for instance, have debated market access for years without resolution.

Domestic pressures loom large. Trump’s threat of 50% EU tariffs—quickly walked back—highlights a pattern of volatility that could alienate allies. Meanwhile, Beijing’s new industrial policy signals defiance, not concession, suggesting China will prioritize self-sufficiency over U.S. demands. For businesses, this means hedging bets: diversify supply chains, but prepare for a protracted economic cold war.