Parsing U.S.-China Trade Talks

China trade expert Cui Fan on the present and future of U.S.-China trade landscape

The Beijing-Washington Geneva talks put the tariff war on hold, but its possible outcome and implications for the future trajectory of U.S.-China trade relations are yet to be anatomized. We interviewed Cui Fan崔凡, a professor at the University of International Business and Economics (UIBE) and a standing council member of the China Society for WTO Studies, for an in-depth analysis. Prof. Cui is a leading Chinese expert on international trade, who has been actively involved in the drafting of China’s laws related to global trade and foreign investment. The following is the full text of the interview, conducted by Xinhua journalist Xu Zeyu on May 15th.

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Question 1:

The U.S.-China joint statement in Geneva announced temporary removals and suspensions of the two nations’ tariffs on each other. It is reported that the U.S. tariffs on China have now been lowered from 145% to 30%, and China's levies on American goods from 125% to 10%. What exactly is the current status of bilateral tariffs after the de-escalation?

Cui Fan:

First, the figures of “30%” and “10%” refer only to the additional tariffs imposed this year. For the U.S., the remaining 30% tariffs on Chinese goods are two-fold: the 20% tariffs added this February and March due to the alleged fentanyl claims, and what was left of the so-called “reciprocal tariffs” introduced in April. The reciprocal tariffs on China, which used to stand at 34% in the first place, have now been slashed by 24 percentage points during the 90-day negotiation. That part of the tariffs will remain at the baseline-tariff rate of 10%.

On the part of China, however, the “10%” is not as precise. It largely refers to Beijing’s retaliation against reciprocal tariffs, which has also been cut to this rate after the joint statement. In addition, China’s countermeasures against the “fentanyl-related” tariff barriers have been kept in place. These are not across-the-board levies, but targeted specifically at certain U.S. products such as soybeans and large-displacement vehicles. Therefore, if calculated as a simple arithmetic average, China’s additional tariffs on U.S. goods are actually a bit higher than 10%. Also, some of the non-tariff countermeasures Beijing introduced can not be reflected in the average tariff rate.

Other than the newly-added duties this year, that is the 30% and 10%, today’s actual U.S.-China bilateral tariffs should also take into account the earlier layers that remain in force. These include Section 301 tariffs, Section 232 tariffs, and the WTO-consistent Most Favored Nation tariffs, along with China’s reprisals. According to our calculations, during the 90-day period, U.S. arithmetic average tariffs on China stand at 53.07%, and China’s on America amount to 32.94%. The gap of approximately 20 percentage points was mainly generated by the “fentanyl tariffs” early this year.

Question 2:

How much has this round of tariff exchange affected the U.S.-China trade?

Cui Fan:

Before Washington imposed the “fentanyl tariffs” this February, Chinese exports to America only faced tariffs of approximately 22%. Chinese firms had largely weathered the aftermath of the last trade war through promoting productivity and adjusting their global industrial and value chains. While China has dropped from the top to the third-largest exporter to the U.S., the real share of Chinese goods in the American market actually saw no decline if we calculate based on value added, because the intermediate trade has been a factor. Based on the data we collected for 2022, the value-added share of Chinese goods in the U.S. market was slightly higher than it was before the 2018 trade war.

The two rounds of 10% “fentanyl tariffs” this February and March did not cause a major blow to Chinese firms. In fact, China’s trade volume in the first quarter grew steadily by the month. One contributing factor was of course the frontloading mania prior to the deadline of reciprocal tariffs. So we cannot say for sure whether the 20% “fentanyl tariffs” could have been fully overcome by Chinese firms on themselves.

China’s exports to the U.S. dropped abruptly by 20.2% in April, after the spiral escalation of U.S.-China tariff slapping. However, Chinese exports to the EU, ASEAN, Latin America, and Africa saw significant increases. As a result, China’s total exports in the month following the “Liberation Day” rose 9.3% year-on-year in RMB terms. That is to say, the decline in exports to America was fully compensated by those to the other parts of the world.

Another key indicator for foreign trade is the outbound port cargo volumes. China’s export freight quantity rose by 5.9% in April. The Containerized Freight Index of Shanghai port on May 9th showed a 0.3% increase. These were signs that the cargo flows from Chinese ports stayed steady despite the Trumpian tariff chaos. In contrast, the U.S. began to experience a noticeable decline in cargo volumes starting in late April and early May. The two largest American ports, Long Beach and Los Angeles, then forecast that the cargo volumes in May could slump by at least 30%.

That was why Washington was in a hurry to initiate trade talks with Beijing. Any further delay would have pushed domestic prices even higher with empty shelves in the supermarket. The U.S. would be left with few bargaining chips by then.

Question 3:

Many observers are now convinced that China has secured a victory in this round of the tariff war. Following the latest joint statement, U.S. levies on Chinese goods have largely returned to pre-"Liberation Day" levels. Does this mean Washington blinked first?

Cui Fan:
The rollback of tariffs will benefit not only China, but also the U.S. and the global economy. The aim of the negotiation is to achieve a win-win outcome that restores a mutually beneficial U.S.-China trade tie. Therefore, it is inappropriate to say either one party has secured a “win.” The greatest achievement of the Geneva talks was de-escalation. It should be noted that the U.S. tariffs on China are still enormous. Geneva has laid the ground for further talks.

One thing is different though. The general tone of the U.S.-China talks this time is no longer marked by Americans’ overbearing arrogance. When the Trump administration first introduced the reciprocal tariffs plan, they urged the other countries not to retaliate or they would face punitive escalation. However, it turned out that Beijing retaliated. And when Washington upped the ante, it found that America bruises much harder.

In my opinion, countries with industrial capacity will prove more economically resilient than those with nothing but printed banknotes. According to the data at the end of 2024, China has been the sole supplier of 254 commodities in the U.S. market, including toasters and alarm clocks. If the U.S.-China trade were to reduce to the point of a de facto mutual embargo, Chinese goods could still turn to alternative markets, but American consumers would only face dusty store shelves with no readily available alternative supplier.

Question 4:

While it took the last Trump administration 18 months to reach a trade agreement with China, there is only a 90-day window for trade talks this time. Wendy Cutler, former Acting Deputy U.S. Trade Representative at the USTR, remarked that “there's no way during this timeframe we're doing a comprehensive agreement with any of these countries.” In your view, is it possible for China and the U.S. to reach a deal within 90 days?

Cui Fan:
The negotiations within the 90-day period will primarily focus on the so-called "reciprocal tariffs," while the issue of “fentanyl-related tariffs” may be addressed as a separate topic. Based on the progress of the U.S. negotiations with other countries disclosed by the media, it appears that the United States may retain a considerable portion of its unilateral tariffs. It has been China’s consistent position that the U.S. should remove all unilateral tariffs. China will not recognize the legitimacy of any remaining U.S. unilateral tariffs and will likely maintain its own countermeasures in response. In the meantime, I believe China is willing to show some negotiating flexibility when it comes to measures that are conducive to mutually beneficial trade relations. I believe China and the U.S. will reach an agreement within the 90-day period. However, we shouldn’t expect a deal that resolves all the differences. Afterwards, further communication is still badly needed to address the outstanding issues between the two biggest economies in the world.

Question 5:

U.S. Treasury Secretary Scott Bessent has claimed that China’s current economic model is built on “exporting its way out of its economic troubles,” and should rebalance towards a consumption-oriented model. According to his op-ed in the Wall Street Journal, he believes China’s rise in global commerce caused America’s manufacturing decline and job loss. Would you agree that such structural tensions exist in U.S.–China trade?

Cui Fan:
What he said is clearly inaccurate. First of all, it is the U.S. that has been a typical case of trying to solve domestic problems through external measures. How come the U.S. has such an enormous domestic demand? The U.S. dollar’s global hegemony. Americans can purchase goods simply by issuing currency. Before the dollar was unpegged from gold in the early 1970s, the post-war U.S. recorded virtually no trade deficit. But ever since the Nixon Shock, the U.S. government’s long-standing lack of fiscal discipline has given rise to its current account deficit. The dollar hegemony came at a price: the decline of its manufacturing sector.

Last year, the U.S. had a total trade deficit in goods and services of US$918.4 billion. At the same time, the federal budget deficit reached US$1.83 trillion, amounting to 6.4% of its GDP, while the commonly accepted warning line for the deficit-to-GDP ratio stands at 3%. If the U.S. were to cut its deficit by half, bringing it down to around 3.2% with a US$915 billion reduction, the problem of trade deficit would largely be solved. But there is no way for Washington to slash the budget deficit on such a scale. The interest payments on U.S. national debt alone are expected to reach US$1.2 trillion this year, which amounts to two-thirds of last year’s federal budget deficit. This reflects a structural inertia embedded in the U.S. fiscal system. Washington has been misguided in accusing China and the rest of the world of generating trade deficits. This does little to address its own structural problems.

The US often claims that it has been taken advantage of under the current global trade system. Let us put it in perspective. It is true that the U.S. maintained relatively low legal tariffs when it still abided by the WTO rules. But why low tariffs? When the U.S. led the establishment of the WTO, it pushed to bring the entire world into a free trade framework, to demand free access to other players’ key sectors, and to install a set of high-standard intellectual property protection norms. The U.S. opened up its own goods market, in exchange for others opening their services market and adopting high-standard intellectual property rules. The multilateral trading system was established under the U.S. leadership, and, overall, serves U.S. interests. The real issue lies in the highly uneven distribution of those benefits within the country.

Reciprocity in international economic and trade relations refers to an overall balance of rights and obligations. The "reciprocity" demanded by the U.S. under its so-called "reciprocal tariffs" refers only to a kind of reciprocity in narrow terms, specifically in areas where the U.S. perceives itself as disadvantaged. For example, it only counts its trade deficit in goods, while ignoring its annual US$300 billion surplus in services trade, its huge investment returns, and the privileges conferred by dollar hegemony. If Washington only looks at the deficit in goods or even simply manufactured goods while ignoring all these other advantages, then this is a form of “lopsided reciprocity,” which can be highly deceptive.

Moreover, from the perspective of macroeconomics, the Chinese economy itself does not exhibit significant external imbalances. Since 2015, China’s current-account surplus has consistently remained around 2% of GDP, and at times has even fallen below 1%. While China’s current-account surplus relative to GDP is not large, it only appears substantial in absolute terms due to the overall size of China’s economy. The Chinese economy has maintained a macroeconomic balance. The real issue lies in the lopsided structure of domestic demand, which is an exclusively domestic problem with little impact on the U.S. whatsoever. If China further expands its domestic demand, whether through consumption, investment, or government procurement, it will further hone the competitive edge of China’s scale-based industries, and China’s manufacturing exports will consequently surge. But again, this does not address the root causes of America’s own economic problems.

Question 6:

Has China become less dependent on the U.S. market for exports?

Cui Fan:

Back in 2000, 20.9% of China’s total exports went to America. By 2016, just before the last round of the trade war, that figure had dropped to 18.2%. Meanwhile, the share of U.S. exports going to China rose from 2% to 8% over the same time frame. In a normal trajectory, this indicates a growing U.S. dependence on the Chinese market, with mutual market dependence gradually converging. As China’s weight in the global economy has grown, its exports relative to its GDP have been declining, even as its share of global exports has continued to grow. This suggests that while Chinese goods have become even more salient in world trade, China’s own dependence on external markets is waning.

Question 7:

Will this round of tariff conflict lead to the total collapse of the WTO system? And will the global trade landscape be fundamentally changed?

Cui Fan:

Few people have paid attention to this particular detail, that apart from the U.S., all the other 165 WTO members continue to conduct bilateral trade under WTO-compliant low tariffs. This differs sharply from the everyone-for-himself trade wars of the 1920s and 1930s. As of now, only the U.S. has the audacity to disregard international norms. The rest of the world is reluctant to give up such a rules-based global trade framework. The global trade landscape we knew has not been totally shattered.

The two foundational principles of the WTO are the Most-Favored-Nation (MFN) clause and tariff binding. These two principles will stand, even if a new global trade system replaces the current one. Since 1860, the MFN principle has served as a standard non-discriminatory clause in almost all trade agreements concluded on good terms. It is a rule with enduring vitality and is unlikely to fade away. The principle of tariff binding is essentially about keeping one’s word: countries commit not to raise their tariffs beyond the ceilings promised to the WTO. The U.S.’s wayward tariff policies have been called out partly because the U.S., as a WTO member, is obligated to uphold its commitments and cannot unilaterally raise tariffs at will.

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You may also be interested in this analytical article we wrote one month before Trump’s inauguration. It incorporates an all-round analysis of the Chinese economy’s resilience against the U.S. tariff spikes. Read full text:

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Xu Zeyu, founder of Sinical China, is a senior journalist with Xinhua News Agency. Email: xuzeyuphilip@gmail.com

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