China sees time on its side as nations rush for tariff deals

In a Truth Social post detailing a call with South Korea’s acting president about a trade agreement, President Donald Trump said: “China also wants to make a deal, badly, but they don’t know how to get it started. We are waiting for their call. It will happen!”

That “waiting for their call” is what concerns China watchers. While the leadership there has wanted to make a deal for months, there have been no senior-level discussions between the two countries of late, according to people familiar with the situation. Chinese officials have little confidence in U.S. negotiations, and there is increasingly a wait-and-see approach, they say.

The view in China is that the more pushback the administration gets from allies, companies, the market, and Republicans, the better positioned they will be whenever the two sides do talk.

Before Trump’s April 2 announcement of additional tariffs on China, Chinese officials had proposed a deal to control chemicals used to produce fentanyl that included steps beyond what the U.S. had requested. But one of the people familiar with the situation said they couldn’t find anyone in the administration who would engage.

A White House spokesman didn’t immediately respond to request for comment.

For those keeping tabs, the U.S. hit China with 34% tariffs last week, on top of the 20% it had imposed shortly after Trump took office. Those came on top of up to 25% tariffs on about $350 billion of Chinese imports already in place from his first term. Another 25% related to buying Venezuelan oil was also in the mix.

China responded Friday, saying it would impose 34% tariffs on U.S. goods if the latest U.S. levy takes effect, bringing a threat from Trump to add an additional 50% tariff. On Tuesday, Treasury Secretary Scott Bessent doubled down, calling China’s escalation a “big mistake” and saying they had a “losing hand.”

That type of escalation is worrying those watching the situation. “Every time the administration takes another action, it makes the off-ramp more elusive, makes the balance that needs to be struck harder and further erodes trust,” said one of the people familiar with the situation. 

Analysts estimated an effective tariff rate of more than 60% before Trump’s threat to raise the number another 50%. Even tariffs of 60% to 65% would be prohibitively high for exports to the U.S. to continue, especially for the lower-margin basic and midtier goods that account for much of what the U.S. buys from China.

Economists described further tariff increases as besides the point because trade winds down to zero after a certain point, meaning further increases aren’t that meaningful. Several have referred to higher levels as “funny money” or “looney tunes” because after 65%, they wouldn’t move the needle.

“If I move tariff from 1000% to 1 million percent, it doesn’t matter because we have already choked off trade,” said Nathan Sheets, Citi’s global chief economist and a former Treasury official.

Though the next couple of weeks will likely bring possible tariff respite or deals with various countries, China may not be in the first batch. “I’d be very surprised to see significant process on China in the next three to six months,” said Sheets. “Over a one- to three year period, we could see some of the China tariffs reduced but that feels more like a next year proposition. The situation is more complicated with deep-seated issues.”

Few expect a grand bargain between the U.S. and China, in part because geopolitical strategists say there is neither the confidence nor the patience to hash out an agreement. The one struck during the first Trump administration took roughly 18 months. 

More likely, if the two sides are able to get to talking, are a series of mini-deals to rebuild confidence. Possibilities include an agreement regarding fentanyl for a cut in some tariffs, Beijing signing on a sale of TikTok for further reductions, and possible purchases or investment deals to help the U.S. reindustrialize if trust is rebuilt.

Those agreements might be similar to the Phase One trade deal the two sides reached in Trump’s first term. That included commitments by China to purchase a range of agricultural products, though Beijing ended up not following through.

For now, China is focusing on its own house to gird against what people there see as continued tensions. A spate of other China-oriented measures remain possibilities, including potential tariffs on semiconductors and pharmaceuticals. 

The Trump team floated the possibility of a new so-called Section 301 investigation of China, allowing for still more tariffs, in a report the U.S. Trade Representative released last week on the trading relationship and what it called China’s noncompliance with the Phase One trade deal.

The view among geopolitical strategists in China and others that have been meeting with officials and companies there is that U.S. trade policy now appears to be about decoupling from China, and perhaps from the world. Chinese officials are willing to let the U.S. hang itself, working around Washington to pursue deepening relationships with Europe, Latin America, Southeast Asia, and others. 

“In the White House, there’s a sense that U.S. companies maybe shouldn’t be doing business in China,” said Owen Tedford, analyst at Beacon Policy Advisors. “There’s not necessarily going to be as much sympathy for those caught in this trade war crossfire. If Apple says their business in China is going to get crushed, I don’t think the White House is going to care. They are going to say get out of China.”

The concern now is that friction could worsen if China retaliates further. Already, it has introduced anti-dumping probes. Analysts expect further retaliation to include targeting companies operating there with probes like one recently launched into medical device makers and an antimonopoly investigation into a subsidiary of Dupont.

Those looking for signs of de-escalation may want to track any progress on back-channel communications and whether the White House gives China any credit for its fentanyl-related proposals. China watchers, though, are increasingly bracing for trouble.