Stockholm
This week, the fate of the global economy could have been decided over a Mongolian barbecue in a Stockholm tourist trap. On Tuesday, just 50 yards from Sweden’s seat of government, Rosenbad – where the US Treasury Secretary Scott Bessent and the Chinese Vice Premier He Lifeng had been wrangling over trade negotiations – the Chinese delegation suddenly exited the talks and headed for lunch near the Mongolian buffet place, where they had eaten the day before. Its windows were covered up and a sign announced it would be closed for three days for a ‘private event’. The Americans stayed behind, making do with salad.
China, still the factory of the world, remains the biggest test of Donald Trump’s resolve
The Chinese had left to ‘report back to the mothership’, as Bessent later put it. But the mothership apparently did not budge. After talks resumed, it soon became clear that no breakthrough agreement had been struck.
China wanted another extension to its tariff truce with America, which expires on 12 August. Bessent said that was a call for his mothership, Donald Trump. The Treasury Secretary seemed to hint that Trump would approve such an extension. ‘Just to tamp down that rhetoric, the meetings were very constructive. We just haven’t given that sign-off,’ he said, diplomatically.
The problem is that two major issues haven’t been resolved: fentanyl, and the Chinese support for Russia and Iran. On fentanyl, ‘we seem to have a sequencing problem’, said Bessent, delicately. The Chinese want Trump’s tariffs to be reduced before they take action to prevent the manufacture of the chemicals that make the drug, which killed 50,000 Americans last year. The US side wants things to happen the other way round.
Moving on to Iran and Russia, Bessent said: ‘One thing we are not pleased with, I’m sure the President won’t be, but it’s no secret: the Chinese buying 90 per cent of Iranian oil. They’ve contributed $15 billion in dual use technology to the Russian war machine.’
Insiders and Chinese officials kept a nervous eye on Trump’s Truth Social media account for signs of an angry orange eruption. But Trump, returning from Scotland on Tuesday night, sounded sanguine. ‘They had a very good meeting with China, and it seems that they’re going to brief me tomorrow,’ he told reporters on Air Force One. The President appears to be in a better mood than he was in February, when he seemed hellbent on exploding trade relations with the world and especially China.
On rare earth metals and magnets, Bessent and his Chinese counterparts appear to have made progress, building on previous meetings in London. Other key topics that didn’t make it to the negotiating table were the future of TikTok and a possible meeting between Trump and Xi – ‘that’s at the leaders’ level’, the Americans said.
Officials inside the room told me that most of that time was spent playing a civil but pointed game of ‘My economy’s bigger than yours’.
‘We had a big exchange – a very long exchange – and briefings on the economies of both countries,’ Bessent reported. The Chinese, he added, ‘believe that their economy is in good shape’.
America’s aim is to rebalance China’s financial model – which Bessent calls ‘the most unbalanced economy in modern times’, the likes of which we haven’t ‘seen since the British Empire’ – away from mass manufacturing and toward internal consumerism. This isn’t just about dollar dominance or bringing in an estimated $300 billion to the US economy from tariffs: it’s about changing China. ‘They believe that they have a robust consumer economy, and they do not believe that they have a manufacturing surplus that is making its way into the rest of the world. Which I disagree with,’ said Bessent.
Outside the nearby Sheraton and Diplomat hotels, bored police officers milled about. Anyone searching for drama had to look to the press corps, which consisted mostly of Chinese journalists. Trade talks are bigger news in Beijing.
There was some fretting about ‘optics’ from US officials. Representatives of the US Treasury were concerned about the white-walled room the Swedes provided for Bessent’s television appearance – ‘hostage vibes,’ muttered one aide. A spat over the positioning of the Chinese and American flags outside Rosenbad was also rumoured.
What’s clear is that Trump has gained the upper hand in the trade war. When he unleashed his tariffs on what he called ‘liberation day’, the global expert consensus was clear: disaster. The tariffs, we were told, would amount to the largest tax hike on Americans since the 1910s. Inflation would soar. Growth would stall. Businesses and capital would flee.
But the orthodoxy has, so far at least, been proved wrong. The numbers have come in better than expected. Inflation has stayed close to the 2 per cent target. Almost 800,000 jobs have been created this year. Second-quarter GDP is expected to grow at a healthy rate of 2.4 per cent. The stock market has rebounded sharply and is up nearly 10 per cent since Trump’s re-election. The forecasts were pessimistic.
America has won in Europe too. Europe has agreed to invest some $1.4 trillion into American energy and infrastructure in exchange for a reduced yet still significant tariff rate of 15 per cent. The French Prime Minister called it ‘submission’.
America has won in Europe too
America has effectively challenged Europe to pick a side, Washington or Beijing, and for now Europe has chosen Washington. ‘I don’t know if they have our back,’ said Bessent, ‘but clearly, the European relationship with the Chinese had a substantial deterioration.’ As the US put up the tariff wall, the door opened for increased trade flows between Europe and China.
According to Bessent, however, the EU has decided that being flooded with more cheap Chinese goods – while Beijing continued to protect its manufacturing at every turn – is not an economic blessing.
‘I had told them: this is what’s going to happen,’ says Bessent. ‘There is now much more unity between the US and the allies. They’re now seeing the downside [of China] the US has seen.’
The tariff regime, then, has frightened the world away from its dependence on a frequently malevolent Chinese superpower. Trump’s madman tactic makes everyone crazy, but it appears to have worked. The fear that Trump really might go all the way with his threat of 100 per cent-plus tariffs, never backing down, has enabled him to walk things back toward normality while achieving his objectives.
China, still the factory of the world, remains the biggest test of Trump’s resolve. But all sides know that, as America settles its trade disagreements with the rest of the world, it is Xi Jinping who now most needs the tariff pause to continue.
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