President Trump has extended a truce between the U.S. and China on tariffs, a move that could pave the way for a summit with Chinese leader Xi Jinping later this year.
With just hours remaining on the clock before Tuesday’s imminent midnight deadline, Trump’s executive order acknowledged that China was taking “significant steps” to address U.S. concerns over “economic and national security issues.” Beijing announced the extension of the truce at the same time.
Allowing the truce to expire would have caused tariff rates in both countries to skyrocket, dealing a major blow to trade between the world’s two largest economies. The U.S. will maintain its standard tariff rate on Chinese goods at 30%, and China will keep its own rate on U.S. goods at 10%.
The extension gives both sides another 90 days to resolve their differences on a range of issues, as Trump seeks to reshape the global economy in favor of bringing manufacturing back to the U.S. It also comes at a time when the U.S. is announcing several trade deals with countries like South Korea and Japan on one hand, while imposing high tariffs on various nations on the other—for example, Trump threatened to raise U.S. tariffs to 50% on Indian exports to the U.S. at the end of August due to that country’s continued purchases of Russian oil.
“Today’s news stabilizes the situation in all respects, boosts confidence among American consumers, importers of goods that sell those products in the U.S., and manufacturers in China,” said David Meale, head of the China Division at Eurasia Group and former diplomat and deputy chief of mission at the U.S. Embassy in Beijing. “I think it’s very likely that the U.S. and China will reach some kind of trade deal, and the next steps will likely be driven by the prospect of a leaders’ meeting between President Trump and President Xi at the end of this fall.”
Meale says he believes the next steps for both sides will involve more meetings between trade and economic officials, like those held in Stockholm last month, to pave the way for an eventual face-to-face meeting and a more concrete trade deal, which could be signed before the latest truce expires on November 10.
Shortly after taking office, Trump relaunched a trade war that he started in his first term, announcing tariff increases on China. Beijing responded with its own reciprocal tariffs and export controls on rare earth minerals like bismuth and tungsten, which are crucial components in most electronics. A series of rate hikes and responses continued into March and April, with U.S. tariffs on Chinese imports ultimately reaching 145%, and China’s tariffs on U.S. exports rising to 125%.
In a meeting in Geneva in May, however, tensions cooled when the two sides announced a 90-day truce, with both countries reducing tariff rates and easing other trade barriers, including deliveries of Chinese rare earth minerals. But both sides soon accused each other of failing to comply with the agreement’s terms.
The two sides held two days of talks in Stockholm last month, but left without reaching an agreement. After the talks, U.S. Treasury Secretary Scott Bessent told CNBC that he believed the U.S. and China had reached “the elements of a deal” and that “There are still some technical details to be ironed out on the Chinese side between us. I’m confident it will be done, but it’s not 100% finalized.” Bessent added that the final decision on approving any deal rested with President Trump.
Negotiations between the U.S. and China have been complex and included various issues, from U.S. concerns over Chinese overproduction and purchases of Russian oil to Chinese complaints about Washington’s decision to restrict exports of semiconductors that China needs to power AI systems.
Meale says the U.S. priority in these negotiations will be to reduce its trade deficit with China, secure and diversify its supply chains away from dependence on China, and ensure a stable flow of rare earth minerals from China. There will be significant tariffs on Chinese goods entering the U.S. “when all this is over,” Meale predicts.
China, Meale says, is “seeking stability” in its relationship with the U.S. as it faces a slowing economy and seeks a more predictable environment for its businesses. Meale says China will also try to maintain its access to U.S. technologies like high-performance semiconductors and jet engines.
Nicholas Lardy, nonresident fellow at the Peterson Institute for International Economics, also says a final U.S.-China trade deal could include relief from technology restrictions, and a less likely possibility would be Chinese promises to invest in U.S. manufacturing. Lardy adds that even if both sides make progress and reach a deal, in Trump’s view, “bilateral trade would shrink considerably, beyond what we’ve already seen.”
Although the truce has eased the worst of the trade tensions, trade between the U.S. and China has fallen markedly since the start of this year. China’s July export data showed that its exports to the U.S. declined year-over-year for the fourth consecutive month, and China’s imports from the U.S. fell 10.3% in the January-to-July period.
Source: npr.org by Ashish Valentine