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China's Vice Premier He Lifeng and Treasury Secretary Scott Bessent discussed trade relations and tariffs in Geneva on May 10. (Martial Trezzini/AFP/Getty Images) |
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Between official meetings in Beijing on Tuesday, European Central Bank President Christine Lagarde stopped by the Temple of Confucius. Emerging from the 14th century site, she recited an aphorism attributed to the Chinese sage in a video post on X: “He who learns but doesn’t think is lost,” the veteran economist said. “He who thinks but doesn’t learn is in danger.” Lagarde suggested that such Confucian wisdom was relevant to her current mission, as she and her European colleagues sought to better understand the state of China’s economy and engage with Chinese counterparts amid pronounced global tensions. But it equally could apply to the high-level Trump administration team meeting top Chinese officials this week in London for trade talks. The negotiations followed weeks of protectionist squabbling and retaliatory measures triggered by President Donald Trump’s “Liberation Day” tariffs, which, beyond blanket levies on imports, applied additional tariffs on Chinese goods. It’s not quite clear what Trump and his allies have learned since launching the latest phase of this trade war with the Asian giant, but there’s a broad consensus among economists about the dangers facing the United States. After talks last month in Geneva, Washington and Beijing agreed to a temporary suspension of many of the 100 percent-plus tariffs that each country had slapped on the other in an escalating trade war. But the broader uncertainty over the trade landscape is a drag on businesses in both countries that are enmeshed in global supply chains. Data suggests a 34 percent decline in Chinese exports to the United States, a significant dip that can be partially offset only by increased sales to other parts of the world. The talks in London centered on rival sets of export controls: U.S. restrictions on cutting-edge semiconductor and chip exports to China, and Beijing’s controls over the rare earths needed to manufacture products as varied as cars, fighter jets, iPhones and medical machines. As my colleagues reported, the standoff arguably put China in a stronger position, as it was better able to navigate around the shortages in advanced chips than the United States could do without rare earths, which could run out in the coming months and spell disaster for U.S. auto and arms companies. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer told reporters in London late Tuesday that the United States and China have reached a trade agreement in principle following two days of in-person negotiations and are heading back to their respective countries to seek final approval from Trump and Chinese President Xi Jinping. The current state of play belies the Trump administration’s earlier bravado. “What do we lose by the Chinese raising tariffs on us?” Treasury Secretary Scott Bessent, who was in London this week alongside Lutnick, said in April. “We export one-fifth to them of what they export to us, so that is a losing hand for them.” The panic over rare earths has “revealed the flaw in the administration’s belief that the lopsided bilateral trade relationship gave Washington an insurmountable advantage,” wrote my colleague David Lynch. “China might buy far more from the U.S. than the U.S. bought from China, but China enjoyed leverage from its near monopoly on inputs that advanced economies require.” One auto industry expert suggested to CNN that the whole industry in the U.S. is preparing for a shutdown. “People think that it’s only EVs [electric vehicles], but it’s not,” the expert said. “It’s in everything in every car. It’s in the motors that run windshield wipers. One supplier I’m talking to said there are sensors in seat belts. I think there’s going to be production disruptions all over the place. China really has our balls in a vise.” The same could be true in the defense sector. “Right now, [China has] got a lot of leverage, and they are squeezing really hard and they want more concessions,” Liza Tobin, managing director at Garnaut Global, a geopolitical risk advisory firm focused on China, told my colleagues. “They absolutely want to send a signal that they can shut down the American war machine whenever they want.” In Beijing, there’s a sense of confidence. “Back in February, the mainstream narrative in the U.S. was, ‘Oh, the Chinese economy is bad, so if the U.S. is going to use tariff stick, China would have no choice but to surrender,’” Wu Xinbo, dean of the Institute of International Studies at Fudan University in Shanghai, told The Washington Post, adding that now it seems U.S. officials understand that “China was better prepared for the trade war in the first stage.” For Trump and his allies, the tariffs are all part of what they see as a necessary rebalancing of the global trade order. They think China — with its use of industrial subsidies, currency manipulations and other statist tools — has for years unfairly rigged the global economy in its favor. And they see their trade war as the first step in returning some critical industries and manufacturing back to the United States and away from Beijing’s purview. That view has myriad skeptics among mainstream economists. “The United States gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost,” noted Adam Posen, president of the Peterson Institute for International Economics in April. “Reducing such dependence on China may be a reason for action, but fighting the current war before doing so is a recipe for almost certain defeat, at enormous cost.” The Trump administration has frustrated allies elsewhere with the whiplash of its various trade-related announcements, its numerous threats and occasional climbdowns, and the naked transactionalism of Trump’s approach. “We are seeing what U.S.-China trade competition looks like when it’s unmoored from any principles,” Scott Kennedy, a senior adviser at the Center for Strategic and International Studies in Washington, told my colleagues. “The U.S. is not trying to defend the rules-based order. It’s not trying to defend market economies from Chinese misbehavior. It’s just simply trying to cut a deal that’s in the short-term self-interest of the American leader.” In an essay in Foreign Affairs, former U.S. trade officials Emily Kilcrease and Geoffrey Gertz argued that “there is a kernel of truth in the president’s insistence that the international trade system needs a reset,” given the growing dissatisfaction with the effects of globalization across Western democracies. But while the solution requires a clear-eyed understanding of a world where the United States is no longer the peerless superpower, it also requires patient diplomacy and support from allies furious with the behavior of the United States. “A better path is possible, one that leads to gains for the United States and its allies,” they wrote. “But they need to leverage the current chaos, rather than letting it consume them.” | ||||||||||||||||||