United States and China: Who’s Zoomin’ Who?

(Apologies to the late Aretha Franklin for the title.) Two weeks ago, when I wrote about the panoply of trade deals coming our way, I omitted China, calling it a special case. I had intended to get to it last week, but the deal with the United Kingdom got in the way. So, I am finally addressing it this week.

Trade agreements are supposed to be win-win. Each side makes concessions in order to get some from the other side. Trump, however, is a zero-sum guy. He doesn’t see himself winning unless someone else is losing. Inevitably, that leads to debate over who won in each negotiation. He always says he won, and then it is up to journalists and the commentariat to figure out if that is true. In the most recent case, the reaction of most informed observers has been that China “won,” although there is also widespread acknowledgement that this is only round one, and there is much more to come.

My conclusion is that victory is not so clear. Both sides made concessions. The United States reduced its announced reciprocal tariff rate to 10 percent plus the additional 20 percent tariff because of the fentanyl dispute. That’s a reduction of 115 percentage points from the 145 percent that was announced several weeks ago. China also reduced its tariff by 115 percentage points—from 125 percent down to ten percent. It also removed 28 U.S. firms from its export control list and 17 U.S. firms from its unreliable entity list that were added after April 2. It also promised to pause export controls on medium and heavy rare earths it imposed after April 2, although details of that remain to be published. (Thanks to Scott Kennedy here at CSIS for an excellent summary of what happened.)

Both sides also maintained some restrictions. The United States did not adjust its virtual elimination of de minimis treatment for low-value imports, and it continued preexisting tariffs left over from the Trump 1.0 and Biden administrations on electric vehicles, solar panels, steel, aluminum, and other items. It also maintained its export controls and outbound investment reviews on critical technology.

China continued its 10–15 percent retaliatory tariffs on agricultural products and equipment, coal, oil and gas, and large emissions vehicles, kept 15 primarily U.S. high tech companies on its export control list and 12 on its unreliable entity list, and maintained export controls imposed before April 2 on other critical minerals including gallium, germanium, antimony, and graphite. In addition, it continued its anti-monopoly investigation of Google and announced penalties against the U.S. company Illumina.

Looking only at the balance of concessions, I think the United States got a bit more. Essentially, the situation returned to pretty much where it started, with a 30 percent U.S. tariff (which is actually more like 40–50 percent once you add in the earlier tariffs that were retained), while China’s tariffs ended up lower. Those who argue China “won” are most likely saying that because it didn’t jump to meet the U.S. demands and because, after all the drama, the Trump administration achieved very little.

In reality, the agreement was more of a ceasefire than a victory for either side. Very little of lasting importance was accomplished. Longstanding U.S. complaints about Chinese subsidies, overcapacity, intellectual property theft, and treatment of Western companies were not addressed. China apparently did not press the issue of removing U.S. export controls on critical technology.

Nobody expected any of those issues to be resolved in two meetings over a weekend; in fact, nobody expected any issues to be resolved, so the mutual retreat on tariffs came as a welcome surprise. But that leaves us essentially where we were back in 2018, with all the major differences still outstanding.

That means the most likely scenario going forward is a rerun of the previous movie (but without the threatened movie tariffs). The next 90 days will feature serious negotiations, probably with multiple postponements or even temporary reimposition of renewed tariffs, as it slowly becomes obvious that agreement on anything important is impossible. China is not going to restructure its economy or its export practices to suit us, and we are not going to weaken our technology controls to suit them. The inevitable result will be another small deal, where China makes a few minor concessions and promises to buy more U.S. products.

Such an agreement will, of course, be touted by the administration as the greatest deal ever, and by the time people see its flaws, the public will have moved on to other agreements. At that point, however, it will be fair to say that China won because they will have given up very little of importance and will continue their policies that have done so much damage to other economies.

So, as Aretha would say, who’s zoomin’ who? Right now, nobody, but at the end of the day, it will be China doing the zoomin’, and, unfortunately, it will not only be the Trump administration getting zoomed but also U.S. businesses and consumers who must endure the damage and uncertainty caused by his policies.

William A. Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.