China and US Ease Trade Tensions with Temporary Truce

Wednesday 21 May 2025 - 17:37

By: Zahouani Ilham

China and US Ease Trade Tensions with Temporary Truce

A recent trade agreement between China and the United States, brokered in Geneva through Swiss mediation, has led to a temporary de-escalation of trade tensions. The deal includes a 90-day suspension of certain tariffs, aiming to restore mutual trust and explore future economic collaboration. Both nations issued a joint statement introducing a new discussion framework, led by US Treasury Secretary Scott Besant and Chinese Vice Premier Hu Lifeng, intended to address ongoing trade disputes.

Under the agreement, the US will reduce tariffs on Chinese imports to 30%, while China will lower its tariffs on American goods from 125% to 10%, both for a 90-day period. These tariffs had severely disrupted trade flows, with US ports reporting significant declines in shipments from China. While this step is seen as progress, experts caution it does not resolve the broader conflict. Former President Trump's tariff policies remain largely intact, and American businesses—especially tech firms in Idaho—are awaiting concrete outcomes. One such company, Wide Ray, has already shut down its Chinese operations due to the trade war.

The agreement outlines a mutual 115% reduction in tariffs and includes a mechanism for continued negotiations to oversee its implementation. Washington hopes to improve the trade balance by encouraging China to increase its imports of American goods, reduce the US trade deficit, and curb fentanyl trafficking—a concern China denies responsibility for. The US trade deficit with China currently stands at $295 billion.

The Chinese media has welcomed the agreement, describing it as fair and mutually beneficial. The Chinese Ministry of Commerce and senior diplomats emphasized the importance of cooperation. However, Chinese economists remain skeptical, warning that unresolved issues may re-emerge if no long-term agreement is achieved.

President Xi Jinping responded to the agreement by criticizing US "bullying and hegemony" and reaffirming his belief that trade wars produce no winners. He emphasized the need for global unity and cooperation instead of rivalry and confrontation.

China holds several advantages in this trade conflict. Its vast domestic market and the resilience of its economy give it a buffer against external shocks. The Chinese Communist Party has used nationalism to rally public support, with Xi assuring citizens that “the sky will not fall.”

China is also racing the US in technological development, heavily investing in AI, green energy, and semiconductors. Domestic companies like BYD have surpassed American giants such as Tesla in global sales. China’s chatbot DeepSeek is being positioned as a rival to ChatGPT, and domestic brands like Huawei have eroded Apple’s share in the Chinese market.

Beijing recently announced over $1 trillion in funding for AI innovation to stay ahead of Washington. Despite US attempts to diversify supply chains away from China, the depth and efficiency of China’s manufacturing ecosystem remain unmatched. This long-standing infrastructure has given China a dominant position in global supply chains.

China has diversified its trade partners by expanding ties with Southeast Asia, Africa, and Latin America. For instance, US soybean exports to China have dropped from 40% to 20%, replaced mainly by Brazilian imports. Beijing has also boosted domestic production to secure food supply lines.

In response to fears that the US is trying to isolate China through bilateral deals, Beijing has warned other countries against jeopardizing Chinese interests. Today, China is the primary trading partner of 60 nations, while the US lags behind. China reached a record $1 trillion trade surplus in 2024 and holds over $700 billion in US Treasury bonds, giving it significant leverage.

One of the US's key vulnerabilities is its dependence on rare earth minerals, where China dominates both production and refining. Recently, China restricted exports of seven such minerals, vital for AI chip manufacturing. According to the International Energy Agency, China controls 60% of global production and 90% of refining capacity.

In conclusion, the China-US trade conflict, which intensified during the Trump administration, continues to reshape global economic dynamics. Despite temporary agreements, deeper disputes in technology and investment persist. The rivalry is expected to shape international trade, markets, and political alliances for years to come.