Trump miscalculated on China. Now the administration is trying to fix the mess.
The two nations have a chance for a reset. But both must recognize they remain mutually dependent.
President Donald Trump started his worldwide trade war with what appeared to be a strong hand. China’s economy, in particular, seemed vulnerable as it struggled through a real estate crisis and governmental mismanagement. Beijing would have to deal on terms favorable to the United States.
U.S.-China trade talks this week, however, confirmed this was a miscalculation. Though Trump hailed the results of the summit, held in London, as a new trade deal, the terms largely echoed those of a U.S.-China agreement made in Geneva last month, the implementation of which China had slow-walked. Beijing’s capacity to force economic pain on its people is hardly unlimited; popular outcry over strict pandemic-era restrictions eventually forced the government to relax them. But “eventually” is the key word. Ending the suffering will now require serious dealing on both sides.
After weeks of impasse, the latest talks signaled that the United States and China understand that the economic pain must indeed end. The talks succeeded, if only modestly, because Washington and Beijing decided to put aside the acrimony and recognize that the world’s two largest economies remain mutually dependent.
Though a long-term deal will take more intense negotiations, the two sides promised to remove some recently imposed export controls. China had restricted the export of rare-earth minerals and magnets — vital for electric vehicle batteries, smartphones, U.S. military hardware and other critical applications. Since China accounts for more than 70 percent of the world’s rare-earth mining, and 90 percent of the materials’ processing, the cumbersome export rules had caused uncertainty in American supply chains. The Trump administration believed China agreed to relax them after the Geneva truce on May 12. But China, which views rare earths as a strategic asset, placed new export requirements on domestic companies processing the minerals. The new deal supposedly allows for more exports of rare earths to the U.S. — although, as with everything in China, proof will come later.
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The U.S. imposed its own set of export restrictions on China, including a ban on American companies from using artificial intelligence chips produced by a Chinese company, Huawei, and limitations on the sale of chip design software used in semiconductors. Secretary of State Marco Rubio also vowed to “aggressively revoke” visas of Chinese students in certain fields. According to the latest deal, Washington will roll back those restrictions.
Trump had earlier said China was “doing very poorly right now” and “factories are closing all over China because we’re not taking their product.” Indeed, China even before Trump’s tariff war was suffering from a real estate crisis, growing debt fears, widespread youth unemployment and lower growth projections. But Trump’s tariffs also caused a surge in Chinese nationalism and a sentiment that the country will not be bullied by the U.S.
Beijing has also done a better job than the Trump administration at shoring up relations with other major trading partners. After Trump announced his first round of “Liberation Day” tariffs, Chinese President Xi Jinping visited Southeast Asia, assuring Vietnam, Cambodia and Malaysia that China remained a reliable partner and emphasizing his vision of common prosperity in the “Asian family.”
China also tried shoring up its ties with Europe, which the Trump administration has alienated with high tariffs, a new pro-Russian tilt and hectoring about the free-speech rights of anti-immigrant populist parties. China is reportedly close to finalizing a deal to purchase up to 500 Airbus planes, which could be announced when European leaders travel to Beijing for a summit next month. Without Trump’s trade war, China might have split that order between Airbus and Boeing.
Meanwhile, Beijing watched as Trump backed down from his initial global tariffs, announcing a 90-day pause in the face of a potential U.S. bond market meltdown. Xi, largely a one-man dictator in a tightly controlled system, has far fewer domestic pressures to worry about even in a crippling trade war.
Trump seems intent on decoupling America’s economy from China’s. He has talked about returning manufacturing to the U.S., and his trade negotiators have tried to pressure countries such as Vietnam to remove China from their supply chains. But decoupling won’t be easy, if it can be done at all.
For decades, American companies flocked to China, initially as the world’s cheap factory. But as that label passed on to cheaper locales, China has become the go-to place for skilled labor. U.S. and Chinese supply chains have become so intertwined that economists in the mid-2000s coined the term “Chimerica.” If anything, China has been reducing its dependence on America; it lowered its holding of U.S. Treasury securities from $1.3 trillion in 2011 to $759 billion last year.
The U.S. started off with the economic upper hand, thanks to low unemployment, falling inflation and a strong global network of alliances. But if these were the cards — one of Trump’s favored metaphors — the U.S. overplayed them with China. Allies are now treated as adversaries. The markets are volatile because of uncertainty. Recession fears loom. The World Bank on Tuesday warned that global economic growth would slow sharply this year because of Trump’s trade war.
The talks this week set things on a better course. Now, the administration must play its cards right.