MNI: Tariff Cuts Hard, Despite Refreshed China-U.S. Dialogue

The resumption of regular economic China-U.S. dialogue via the creation of working groups shows both countries want to avoid a costly decoupling, but any substantial breakthrough – such as tariff reduction – remains a distant prospect, policy advisors and market analysts told MNI.

“Having a communication mechanism can resolve some misjudgments between the two countries, but it requires arduous effort should there be any substantial breakthrough,” said an advisor from a government-backed think tank asking for anonymity.

Tentative signs of improved relations, frosty since U.S. President Donald Trump disengaged with China in 2018, have boosted capital markets. The countries announced on Sept 22 the creation of two working groups to exchange views on economic and financial issues, first promised by Chinese Vice-Premier He Lifeng and U.S. Treasury Secretary Janet Yellen when they met in July.

Conditions exist to gradually cancel Section 301 tariffs on Chinese goods, the source said, noting the U.S.’s review of the restrictions had lasted over a year and that high inflation would provide an incentive to allow access to cheap products. The advisor believes the U.S. could partially reduce tariffs should China take a tough stance. The tariffs may also be used as a bargaining chip to encourage China to coordinate its macroeconomic, financial and climate change policies with the U.S.

Zhao Jian, head at the Atlantis Research Institute, noted even a partial reduction in tariffs could face political resistance as the November 2024 U.S. elections near. Zhao believes both countries are facing growing debt risks and price volatility, following attempts to minimise interdependence, which had likely driven the recent warming of relations.

“There is an urgent need to rebuild a smoother mechanism in financial cooperation,” said Zhao. He pointed to China’s selloff of U.S. debt, while Chinese firms have faced fund-raising setbacks in America. The Chinese market has also experienced a significant outflow of U.S. funds, sparking volatility, he added.

Declining trade with China increases cost pressures in the U.S. and exacerbates inflation, Zhao said, while shrinking U.S. demand intensified domestic supply and resulted in deflationary pressure. In the past year, China has shifted from the U.S.’s largest source of imports to the fourth.

COMPETITIONS CONTINUE

However, Shi Yinhong, a professor at Renmin University and a counsellor to the State Council, believes no sign exists of a significant de-escalation of the four-year tariff war, even though both sides have agreed to reopen certain trade discussions. The U.S. wants to maintain its own national security at the expense of economic relations with China, Shi said.

The establishment of working groups and increased communication may not necessarily lead to any substantial economic result, judging from recent Sino-U.S. history, though it may help prevent a military conflict, according to Shi.

Shi said recent interactions, such as this year’s U.S. cabinet-level official visits to China, show the two countries will maintain high-level diplomatic communications, while major technological and economic competitions continue.