It was an extraordinary statement, given all the bluster that had gone before it. Tariffs on Chinese goods will ‘come down substantially’ from their current level of 145 per cent, Donald Trump said on Tuesday, adding that ‘We are doing fine with China … We’re going to live together very happily and ideally work together’.
Perhaps the message was aimed at placating the World Bank and International Monetary Fund spring meetings taking place in Washington this week. The IMF slashed its growth forecasts for the United States, China and most other countries, blaming US tariffs and warned that things could get a lot worse.
Xi is calculating that Trump is haemorrhaging trust
Trump’s comments followed leaked details of a private investor summit hosted by JP Morgan at which his Treasury Secretary Scott Bessent said the stand-off with China could not be sustained and both sides would have to find ways to de-escalate. He characterised the current situation as essentially a trade embargo, according to Bloomberg, adding that there were no current negotiations to end the trade war. Nevertheless, stock markets duly bounced, desperate for some good news.
The American President is not usually one for placating international bureaucrats, financial or otherwise, and publicly at least he has shown an indifference to skittish markets. But he hates a bad headline, and the darkening mood was starkly summed up by the Wall Street Journal on Tuesday: ‘Dow Headed for Worst April Since Great Depression’.
It has seemed that investment analysts were competing to come up with the most colourful analogy for the trade war. Two prize fighters slugging it out in the ring, a pair of arm wrestlers, two cars driving towards each other at breakneck speed in a deranged game of chicken are some of the more memorable. While China has yet to respond publicly to the latest remarks from Washington, Chinese social media, where the Communist party has encouraged a nationalist frenzy around the tariffs, smelt victory, with trending hashtags Wednesday including ‘Trump admitted defeat’.
Trump’s remarks will fuel Beijing’s belief that it can afford to sit back and let the markets push the US President around – that as a much more open economy, the US will feel the pain before China and that as a democracy the pain threshold is much lower. China has also been trying to portray itself as a defender of free trade and globalisation, and to this end is hosting a United Nations event today at which it will invite member states to discuss the ‘dangers of unilateralism and bullying’.
That may well bring an uncomfortable smile to the many states which have faced Chinese economic coercion over recent years. The charm offensive was also tempered this week by a warning from Beijing that it will retaliate against countries that negotiate trade deals with the US ‘at the expense of China’s interests’. In a statement, its Commerce Ministry said, ‘If this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner.’
Many countries, particularly in southeast Asia, have become adept at playing the superpowers off against each other, but are now coming under unprecedented and uncomfortable pressure from both to take sides. Xi is calculating that Trump is haemorrhaging trust, which, while true, overlooks the fact that China has never enjoyed much trust in the first place.
Another key player in Beijing’s strategy, often overlooked, is its formidable logistics sector, always adept at ducking, diving and weaving around restrictions. Priorities now are finding new destinations for exports, on which China’s economic recovery remains highly dependent, and countries willing to turn a blind eye to the transhipment of China-made goods to the US to sidestep tariffs.
The latter could easily turn into a giant game of whack-a-mole. The South Korean authorities have stepped up their vigilance, announcing this week that they identified 29.5 billion won (£15.6 million) of goods falsely labelled as made in Korea and destined for America during the first quarter of the year, a sharp increase. Separately the US Department of Commerce this week announced tariffs of 3,521 per cent on solar cells from factories in Cambodia, Thailand, Vietnam and Malaysia. This follows a year-long investigation and accusations that these are essentially transhipped Chinese products.
Beijing is unlikely to be quick to respond to the latest Trump comments, concluding not unreasonably that it cannot take chaotic and unpredictable day-to-day pronouncements from Washington too literally. Nervous markets, meanwhile, will look to see what emerges from the White House once the world’s financial elite have up sticks and left town.
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