After months of escalating tariff battles between the United States and China, the first significant turning point has emerged. Both sides are preparing for new talks, while Beijing has introduced a sweeping set of measures to shore up its economy.
Trade Talks Resume Amid Economic Maneuvers
China announced that Vice Premier He Lifeng will travel to Switzerland from May 9 to 10, where he is scheduled to meet with the US Treasury Secretary Scott Bessent. A spokesperson for the Ministry of Commerce said that senior American officials have recently signaled a willingness to discuss tariff adjustments, reaching out to Beijing through multiple channels in hopes of opening negotiations. China, after careful assessment of American overtures, taking into account global expectations, its own interests, and the appeals of American industry and consumers, agreed to resume contact.
The ministry spokesperson underscored that “any dialogue or negotiation must be based on mutual respect, equal consultation, and mutual benefit.” Quoting a Chinese proverb, the spokesperson added, “Listen to what they say, watch what they do.” If the United States were to say one thing and do another, or use talks as a pretext for coercion, China “will not agree, nor will it sacrifice its principles or international fairness and justice for the sake of any agreement.”
Key Takeaways on the Current Landscape:
Dialogue is preferable to stalemate. The resumption of direct contact marks a pivotal moment in US–China relations.
A swift agreement is unlikely. Recent talks between the United States and both South Korea and Japan have yielded no breakthroughs. Drawing on the experience of the Trump administration’s first term, these negotiations are expected to be lengthy and difficult.
Endurance will determine the outcome. Both countries are absorbing the pain of elevated tariffs. Whichever side proves less able to withstand the pressure and becomes eager for a deal will likely have to make greater concessions. China, for its part, is preparing for a protracted contest, aiming to inflict enough economic discomfort on the United States to secure a favorable agreement. Unlike Washington, Beijing is not promising a quick resolution.
This context helps explain why, as it announced new talks with Washington, Beijing also unveiled a package of measures in support of the economy. The People’s Bank of China, the National Financial Regulatory Administration, and the China Securities Regulatory Commission jointly introduced the plan. Several elements stand out among the others:
First, the central bank lowered the required reserve ratio for banks, injecting one trillion yuan in long-term liquidity into the financial system. By cutting the ratio by 0.5 percentage points, banks can lend more against their deposits, boosting credit supply. The required reserve ratio for auto finance and leasing companies was reduced from 5 percent to zero, increasing the availability of loans for purchases of cars and equipment. The central bank will also provide 500 billion yuan in new loans for consumer services and elderly care, encouraging spending and investment.
Pan Gongsheng, governor of the central bank, summarized first-quarter financial market performance: The Shanghai SE Composite Index hovered around 3,300 points and rebounded quickly after a dip in early April; 10-year government bond yields remained stable at about 1.65 percent; and after a slight depreciation, the renminbi recovered to about 7.2 per dollar, signaling relatively balanced cross-border capital flows.
The message from Beijing is clear: Even as the United States intensified its tariff campaign, China’s financial markets remained stable. Now, as trade talks resume, Beijing is again moving to bolster liquidity and support the economy, preparing for what could be a drawn-out tariff battle.
Contrasting American and Chinese Approaches
Since taking office, Trump launched tariff battles against the world. The United States has tended to act on impulse, pushing all its chips on the table in hopes of intimidating opponents and securing quick, favorable deals. But when confronted with China’s firm resistance, Washington has appeared short on follow-through. Trump repeatedly talked up negotiations to steady market sentiment, but offered few concrete measures to support the economy, relying instead on threatening Federal Reserve Chair Jerome Powell to cut interest rates. Yet with tariffs fueling inflation, the Fed’s room to maneuver is limited. Trump’s approach has been characterized by bravado, not by sustained strategy.
China, by contrast, has long prepared for the possibility of renewed tariff conflict. Its approach is methodical and deliberate, with contingency plans in place. Last September, Beijing took early steps to stabilize markets and cushion the economic slowdown. Now, as negotiations begin again, it is rolling out another round of liquidity measures – demonstrating a strategy of “building high walls, stockpiling grain, and waiting patiently,” rather than boasting of easy victories.
If the current dynamic holds, the side less able to endure the pain will be the first to seek a deal, and will have to make the greater concessions. China is in no rush; the pace and outcome of talks will depend on how much pain the United States can withstand, and how much it is willing to give up, and how quickly.
Lo Wing-hung
Bastille Commentary
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