More Trump: Maybe We Can Cut China Tariffs Before Talks; UPDATE: 50%?

More 4-D chess, this time on China? Or does Donald Trump want to consolidate whatever gains he can from “Liberation Day” before doing damage to commerce in the US?

A couple of days ago, both the US and China agreed to begin talks this weekend to resolve the trade war that has all but turned off the firehose of goods the latter exports to the former. Both sides had offered some marginal concessions and exemptions to sweeten prospects of negotiations, but China has thus far borne the brunt of the damage. The WSJ offered a bleak look today at China’s production and export woes, along with China’s claims of still-fabulous economic growth:

Overall, China said its export growth demonstrated surprising resilience last month, with the headline figure showing exports rising 8.1% in dollar-denominated terms in April from a year earlier.

But beneath that rosy number was a marked shift in the composition of outbound shipments from China, which has spent the past three decades building up its status as the world’s factory floor.

Chinese shipment of goods to the U.S. dropped 21% in April from a year earlier, while exports to the bloc of Southeast Asian nations known as Asean surged 21%, according to official trade figures released Friday by China’s General Administration of Customs. Exports to Latin America jumped 17%, while shipments to Africa soared 25%, the data showed. Chinese exports to the European Union rose 8.3%.

That’s to be expected, but it’s not going to suffice for Beijing. Their goods won’t sell as much in those markets, in part because of other trade barriers, but also because American consumerism outpaces that in other countries. That’s why 50-60% of China’s exports usually go to the US. The secondary markets are not as lucrative, and it’s almost certain that the goods are getting significantly discounted in them. 

And that spells trouble for Beijing even apart from the economy:

U.S. companies are complaining about soon-to-be empty store shelves, while factories in China are pausing production and some are putting workers on leave. Goldman Sachs has estimated that 16 million jobs in China are involved in the production of exports to the U.S., which would be jeopardized by a prolonged trade impasse.

If the trade war results in even half of those job losses, Beijing will have its hands full when those workers can no longer afford to support their families. They already have tensions from an aging and declining population, thanks to their inept social engineering around “one-child” mandates, especially since there are far more males than females. Xi Jinping is risking a cultural meltdown as it is, and an extended trade war risks a political meltdown as well. 

Of course, Trump has his own problems. So far the tariffs on goods from China hasn’t really hit consumers, but that won’t last forever. When goods stop showing up on shelves, and/or when those goods become significantly more expensive, consumer spending will drop and dissatisfaction will rise. Since around 60-70% of the American economy is based on consumer spending, GDP and other indicators will start looking poor, likely in Q2 and definitely by Q3. 

That may be why Trump offered another sweetener today to get China to negotiate:

Xi Jinping won’t send chocolates and flowers over a proposed 80% tariff, nor would Trump expect him to do so. However, that’s still a dramatic reduction from the current 145% tariff rate — 125% base tariff and 20% sur-tariff over fentanyl-precursor production and exports from China. It’s a move designed to reflect a willingness to negotiate serious concessions this weekend in Geneva between the US and China. And slightly more subtly but just as important, it underscores Bessent’s plenary authority to negotiate terms on Trump’s behalf, which will be helpful for Bessent.

The real fights this weekend probably won’t be over tariff rates anyway. The addition of Jamieson Greer to the negotiating team strongly suggests that Trump wants a focus on unfair labor and trade practices, which have plagued trade with China for the last three decades. The high tariff rates are intended to separate China from the best markets unless and until they reform their practices and compete fairly on trade. Whether that can ever be accomplished in a China run by the Chinese Communist Party is, of course, debatable. Trump isn’t willing to shrug off those unfair practices any longer, though, and he’s right to finally make them an issue. 

It would be easier to do that if we could get our other trading partners on board. Trump got a framework in place with the UK yesterday to settle trade, but we really need the European Union on side to push China on unfair trade and labor practices. That would lock China out of two lucrative markets and push Xi into real change.  Maybe Bessent should take a meeting in Brussels this weekend as well. 

Update: Trump said 80%, but according to the New York Post, Trump’s willing to offer 50% as an opener:

The Trump administration is weighing a plan to slash the 145% tariff on Chinese imports by more than half — effective as soon as next week — as top US and China officials head to Switzerland for high-level trade negotiations, The Post has learned.

Specifically, US officials are discussing a proposal to lower President Trump’s punishing levy on China goods to between 50% and 54% as they begin what promise to be lengthy talks to hammer out a trade agreement, sources close to the negotiations said.

Meanwhile, trade taxes on neighboring south Asian countries would be cut to 25%, the source added.

I don’t think 50% will help Xi much, but again, this is about signals and incentives.