The outcome of any war between two unequal forces could be predictable – maybe the stronger side wins and the weaker side loses. But, when two mighty forces clash, the result does not show any decisive winner or loser. Hence, the way US President Donald Trump could bully Ukraine in the war with Russia, he could ill afford to use the same tactic in the trade war against mighty China. Hence, after slapping an impossible tariff of 145 per cent on Chinese goods, he was forced to climb down for a 30 per cent hike and a truce on 11 May for 90 days.
Likewise, China had to lower its retaliatory hike of 125 per cent on US goods. But, before the ceasefire in the tariff war between the US and China was declared, international business and economy had already suffered such a dislocation that stakeholders across the globe are viewing the truce with great deal of circumspection. That itself shows the quixotic nature of Trump’s trade war. America may call the temporary truce in the US-China trade war a victory, but financial markets seem to think it is a capitulation. Stocks were up and bond yields were higher after the US Treasury Secretary Scott Bessent’s announcement in Geneva, where he had been holding talks with China. As things stand, the US is not reverting to the status quo before Trump entered the White House for his second term. Instead, tariffs on Chinese goods will be cut from 145 per cent to 30 per cent initially for a 90-day period. In return, China has cut its own tariffs on US imports to 10 per cent, from the 125 per cent it had imposed in retaliation. That still means a big shift in the terms of trade between the two countries till Trump came to power, but falls far short of what was in effect a trade embargo. The two sides have agreed to continue their parleys. The statement issued after the truce hailed “the importance of a sustainable, long term and mutually beneficial economic and trade relationship.” The language sounds far more innocuous than Trump’s “Liberation Day” speech when he charged that the US was being “looted, pillaged, raped and plundered by nations near and far.” This only shows the President has been jittery. One of the reasons could be the dire warnings he was reportedly getting from retailers about empty shelves. This was bolstered by data showing shipments into US ports were collapsing.
Also Read
Before that Trump was so confident of winning in his tariff war that he glibly ignored warnings of a shortage of toys. He even told reporters that children should be happy with “two dolls, instead of 30 dolls” and that they might “cost a couple of bucks more” than usual. But, dolls are one thing and shortage of essential goods is another. A situation was developing evoking a Covid like shortage of key goods in the world’s largest economy. It appears the White House thought a tactical retreat would be a far better option. The change of stance also raises hope that if Trump adopts a conciliatory tone with Beijing, some of the other aggressive aspects of his trade policy may be negotiable. But Bessent and his Chinese counterparts are still not able to remove the fear of uncertainty that has gripped investors across the global trading community since the declaration of new tariffs. As for China, it has only temporarily slashed its tariffs leaving many other countries wondering how negotiations on their tariff levels will show up after the 90-day pause. On the other hand, companies throughout the global trading system have no clue yet as to what part of the policy is likely to remain and how prudent it would be to continue working around the US. Bessent’s words at the Press conference after the US-China tariff war pause are significant. Asked whether the trade war was at all necessary since negotiations with China had shown things could be sorted out through talks, he replied otherwise the process would have been too tortuous without substantial gains. There could be a method in this madness.
