After China lived under the threat of Trump's new higher tariffs for months, it now seems that the US president has a new concept of relations and wants to avoid another spiral of rising tariffs. In April, China was still for Trump "the greatest threat to America", and the president claimed that the country had "cheated" Americans for decades. That's why China was imposed with dragon-like tariffs of 145 percent.
Just a few months later, however, the tone changed. Trump extended the grace period for the new tariffs on China, called President Xi Jinping a "strong leader" and talked about a US-China summit in the fall. Meanwhile, countries like India and Brazil are expecting some of the highest possible tariffs, while for China they have dropped to 30 percent.
Trump is being so "soft" with China for various reasons: he wants to avoid an increase in tariffs - and right now, when American retailers need to ensure sufficient imports from China for the important Christmas holidays. He is also buying time to negotiate a comprehensive trade agreement that could also cover technology, energy and rare earth metals.
Economics professor Antonio Fatas told DW that the current development is a consequence of the firm resistance that only China is putting up to Washington's aggressive policy. He believes that Beijing's strategy has probably created difficulties for Trump. "It was clear from the beginning that China was more prepared for a full-scale trade war than the United States," the professor emphasized. This would have “economic consequences that the Trump administration cannot afford.”
What cards does China hold
Beijing’s strongest card in its poker game with the United States is its dominance in rare earth metals, which are needed to produce both electric cars and missile systems. Because the American economy depends on Chinese supplies, they are a decisive factor in the trade dispute.
When Trump announced the horrendous tariffs in April, China, which controls 60 percent of the world’s rare earth metals and almost 90 percent of their processing, imposed export controls on seven rare earth metals and so-called permanent magnets. This has severely affected American industry, including the automotive industry.
Washington, for its part, is pushing for strict restrictions on Chinese access to artificial intelligence chips and is pressuring Beijing to reduce imports of Russian oil.
In addition, Trump is pushing China to quadruple US soybean imports - as they are important to American farmers and, from Trump's point of view, will contribute to establishing a more favorable trade balance with China. The US trade deficit with China last year amounted to about $254.5 billion.
China, for its part, is seeking a permanent reduction in US tariffs, especially on technology and manufacturing. Beijing also wants protection for Chinese companies from US sanctions, as well as concessions regarding access to cutting-edge American chips.
„Trump has enough problems“
Economist Alicia Garcia-Herrero told DW that Trump's concessions towards China are also due to the fact that he is facing numerous trade, domestic political and geopolitical challenges. „Trump has many problems and has no choice but to give China more time than other countries.“ After the customs peace was extended until early November, the leaders of the negotiations can concentrate on the controversial issues.
It is mainly about avoiding the imposition of triple-digit tariffs - 145 percent on Chinese goods and 125 percent on American goods. Both sides agree that such a move would be damaging to their economies. The current tariffs on China of 30 percent are already significantly higher than those on many other countries. Chinese exports of copper and steel to the United States are taxed at 50 percent.
Where India and the EU stand
Tariffs on India could reach 50 percent - currently 25 percent, but another 25 percent could be added if the country continues to import Russian oil. In principle, the tariffs should come into effect on August 27.
Antonio Fatas notes that “India neither has the economic power of China, nor does it export any key products to the United States, which could hurt the American economy“. His advice to New Delhi is to cooperate with its allies so that they can together obtain better customs conditions.
Meanwhile, Chinese exporters have shifted the flow of certain goods destined for the United States through Southeast Asian countries, most notably Vietnam, Malaysia and Thailand. The aim is to blur their origin and circumvent high US tariffs. In response, Trump has imposed a 40 percent tariff on all countries suspected of facilitating the diversion of Chinese goods. These tariffs have already taken effect.
Garcia-Herrero predicts that changes will occur both in terms of export controls for high-tech chips on the American side and in terms of export controls for rare earth metals on the Chinese side. “Lower basic tariffs will probably be set for China and US companies will have better access to the Chinese market. However, this will be to the detriment of the EU, South Korea and Japan“, she says.
Author: Nicolas Martin