Trump's Deal with China: A Temporary Truce Amid Escalating Trade Tensions
Trump's actions have prompted China to adopt a defensive stance
In a surprising turn of events, China and the USA have agreed to take a 90-day break from their ongoing tariff war. The objective is to continue negotiations, with both nations hoping for a resolution. However, renowned economist Jürgen Matthes remains skeptical about the possibilities.
ntv.de: Are you stunned that China and the USA have found common ground in Geneva?
Jürgen Matthes: Recent signs suggested a possible diplomatic thaw. Yet, the agreement is still astonishing. Both US President Donald Trump and the Chinese government are finding it challenging to back down from their positions.
Is the tariff pause more of a diplomatic tactic or a step towards a permanent solution?
The Trump administration's intentions remain unclear. It seems the US desires China to increase its purchases of goods. Such a deal was already struck during Trump's first term, but the Chinese failed to implement it. As of now, the ambitions of both parties can only be speculated upon. Furthermore, it's uncertain if the two countries are willing to take further steps towards each other. But it certainly is positive news that steep tariffs won't be in effect for 90 days.
The tariffs are slated to decrease by 115 percentage points each on Wednesday for 90 days. This means that tariffs for Chinese exports will drop to 30 percent, and surcharges on US exports to China will decrease to 10 percent. This seems to favor the Americans...
Indeed, the Americans have imposed even higher tariffs. Before this, Trump had already imposed tariffs of around 30 percent on several hundred billion dollars of Chinese imports during his first term. Unlike his predecessor, Joe Biden has not changed this. Now, these 30 percent are added on top. A 30 percent tariff compared to 10 percent shows: Trump has effectively put China on the defensive.
What impact will these tariffs have on trade if they persist?
Precise calculations are necessary. Nonetheless, it's evident that tariffs under negotiation will cause less harm to the economies of the USA and China. Germany will also reap indirect benefits from this as the global demand for German goods will not decrease as drastically.
Could China negotiate similar terms as Britain?
Additional 10 percent tariffs on Chinese imports to the USA could be manageable for China and a reasonable outcome for Beijing. However, I don't believe this scenario is very likely.
Why?
Given Trump's history of tough stance against China's subsidies, which give Chinese export goods a competitive advantage, it's plausible that he will be harder on China compared to other nations. The U.S. government sees China as distorting international trade with its subsidies.
Is a compromise achievable given the US’s insistence on a more even trade balance with China?
It's difficult to predict. The USA and China have contrasting views on what constitutes a balanced trade relationship. The USA seeks to reduce its trade deficit with China, while China aims to maintain its export surplus. Only time will tell if the two countries can strike a compromise agreeable to both sides.
The challenge lies in identifying what China would import significantly more from the USA to substantially decrease the trade deficit from the US perspective. Complete equilibrium in trade may not be feasible. However, Trump would likely characterize a substantial reduction in the trade deficit with China as a significant victory.
Special interview with Jürgen Matthes
Sources: ntv.de
- USA
- China
- Trade Tensions
- Tariffs
- In the current scenario of negotiations, the Trump administration's employment policy could potentially influence the outcome, with the aim being to increase Chinese purchases of American goods, as previously agreed but not fully implemented.
- The finance sector might experience fluctuations due to the ongoing trade tensions between the USA and China, as changes in the business environment can significantly impact investment decisions and financial markets.
- The ongoing trade tensions between the USA and China have important implications for policy-and-legislation and politics, particularly with regards to war-and-conflicts, as sanctions and tariffs can escalate into more serious disputes if diplomatic channels prove ineffective.
