US-China Trade Talks: A New Chapter?
The recent trade discussions between the US and China wrapped up in London on June 10th and seem to be shaping up differently from past encounters. The saying goes, “It’s not this time,” but perhaps things are shifting. Washington has been under significant pressure, and the context surrounding these talks is not the same as during the Trump administration or prior discussions under Bush and Obama, where China often took the wrong lessons from negotiations.
After the London meetings, global export controls remain stringent, with customs regulations still at 55%. Huawei’s Ascend AI Chip remains a hot topic, though it’s currently untouched in terms of restrictions, while rare earth minerals are still being traded smoothly.
On the other hand, there are hints of a quieter approach from China, which seems to involve limited agreements—like extending visas for certain university students—without making any bold moves. The proposed sanctions on China by Senators Lindsey Graham (R-SC) and Richard Blumenthal (D-CT) have yet to be expressed in detail, making it unclear if these discussions were part of some behind-the-scenes negotiations.
Scott Bescent from the Treasury Department is optimistic about these negotiations, suggesting they’re genuinely different from past ones. He believes the recent talks in Geneva and London were productive. “I am confident that these negotiations will balance our two economies,” he stated at the Senate Finance Committee on June 12th.
Bescent further emphasized the potential for stabilizing the Chinese economy, hinting that if China agrees to recent terms, it could lead to a beneficial rebalancing of the two largest economies globally. Yet China faces challenges, having been hit with substantial tariffs. They have the ability to sell rare earth materials to the US, and after Japan, the US is their second-largest market—losing it wouldn’t be ideal.
Concerns loom over China’s manufacturing and outsourcing. Since Trump’s tariffs in 2018, many Chinese companies have started moving operations to Southeast Asia and Mexico, which is a significant shift. This could lead to socio-economic changes that the Chinese government hasn’t encountered since joining the WTO in 2001. Sure, they might try to boost exports to Vietnam and Europe, but how much will those markets absorb without affecting local businesses?
The risk of sanctions on China concerning Huawei chips could upend established trust in these transactions. Recently, it appears there have been setbacks for Malaysian AI projects involving Huawei products, which is just another sign of the tense climate.
As Taiwan tightens its grip on Huawei chips with export controls, it’s clear China needs access to the US market, especially for rare earth elements. Given the current landscape, can Wall Street come to their rescue? The strategic decoupling from China is a trend that’s embedded in Washington and among businesses, although the exact scale of job losses remains murky.
Reflecting on the Geneva talks, both sides agreed to lower retaliatory tariffs, essentially committing to continued dialogue, a theme prevalent since 2006. Back then, the Strategic Economic Dialogue (SED) aimed for China to develop a consumer-driven economy that benefited both nations. The purpose remains unchanged despite the different administrations’ approaches, from Bush to Obama and now Trump’s era.
Over the years, despite various commitments, China has continued to grow its influence in global markets, allowing Wall Street to engage more significantly with its economy. However, contrasting past optimism, today’s conversations reflect growing frustrations among American politicians who argue the system isn’t serving American workers well. There’s a call for a fresh approach where protecting American jobs becomes a priority, not just trade balance.
Bescent’s views starkly contrast those of former Treasury Secretary Hank Paulson, who once argued for cooperation and warned against protectionism. Today, the focus has shifted to recognizing a system that isn’t working. Bescent is aware of the typical cycle of relations with China but emphasizes the need for change. Instead of a narrative of gradual cooperation, there’s now a sense of urgency to invest back into the US to maintain international competitiveness.
