China’s hopes grow for deal to avert trade war with Donald Trump

Chinese officials were prepared for Donald Trump to deliver bad news upon his return to the US presidency: immediate 60 percent tariffs on exports that could deal a major blow to the world’s second-largest economy.

Instead, they got an apparent reprieve this week, with Trump ordering an investigation US-China tradeand later repeated the threat of a 10 percent tariff on the deadly opioid fentanyl.

Chinese stocks and the currency were hit on Wednesday by threats of 10 percent tariffs that Trump suggested could be implemented on Feb. 1. The mainland’s CSI 300 index fell 1 percent and Hong Kong’s Hang Seng retreated 1.6 percent, while offshore The renminbi was the worst performer among the Asian major currencies, weakening 0.25 percent to 7.29 Rmb to one dollar.

But Trump’s opening steps on China paled in comparison to the 25 percent tariffs he announced on U.S. allies Mexico and Canada potentially binding a wider deal Tariffs on TikTok, the Chinese-controlled short video platform that US security hawks want shut down.

Despite Trump’s erratic announcements and his tendency to move quickly, this softer-than-expected prelude has rekindled hopes in Beijing that negotiations can avert a second trade war. The question now is what kind of deal will be acceptable to both sides.

“There is a possibility that the two sides can make a deal, you can feel that there is cautious optimism,” said Zhao Minghao, a professor at the Institute of International Studies at Shanghai’s Fudan University. what Trump and Beijing can offer each other.”

Trump and Chinese President Xi Jinping made a phone call on the weekend before the inauguration, they were the first in four years that the US president described as “very good” and covered “Trade, fentanyl, TikTok and many other topics.”

Xi also sent the highest-ranking Chinese official ever to attend a US inauguration. Vice President Han Zhengwho also met with US business leaders, including Trump confidant Elon Musk.

During his campaign, Trump promised to hit China with 60 percent tariffs and also threatened an additional 10 percent Force Beijing to clamp down on the flow of precursor drugs for fentanyl.

Instead, he issued a memo on Monday ordering officials to investigate the U.S. trade deficit and “propose appropriate measures, such as additional global tariffs or other policies, to correct such deficit.”

He also asked the US trade representative to examine Beijing’s compliance with the “phase one” agreement agreed during his first term as president and to consider additional tariffs “particularly related to industrial supply chains and circumvention through third countries”, as possible. much larger implications for China.

Economists believe some of China’s trade with the U.S. has been diverted through third countries to avoid tariffs since the Trump administration’s first trade war.U.S. officials are due to report their findings on April 1.

While Trump signed an order allowing TikTok to operate for 75 days, a reversal from his first term in which he sought to ban it from the US, he also said Beijing should allow an American entity to take half or more of the company. face-to-face: up to 100 percent rates.

The connection of tariffs to the ownership of TikTok followed Quixotic remarks On Monday by Musk, who complained that while the former was allowed to operate in the US, his X social media site was blocked in China.

A person familiar with the matter in China said Beijing could agree to a sale of the platform by TikTok owner ByteDance as part of a broader deal that would include a range of issues, including trade. However, any such discussions were at an early stage, the person said.

Chinese officials, who have long opposed a forced sale of TikTok and must approve it, have appeared to be taking a more dovish approach in recent days.

“When it comes to activities such as business operation and acquisition, we believe that it should be decided by companies independently in accordance with market principles,” the foreign ministry said on Tuesday, adding that “China’s laws and regulations should be preserved.”

Gabriel Wildau, CEO of consultancy Teneo, wrote in an analyst note that Chinese leaders may “believe that an amicable solution to the TikTok issue can lay the groundwork for cooperation on other issues.”

“These could include tariffs, export controls and, in a dream scenario for Beijing, even US policy towards Taiwan and the South China Sea,” Wildau said.

However, economists cautioned that it was too early to be certain that a trade conflict could be averted.While Trump seemed more open to making deals, his administration was filled with Chinese hawksthey said.

“For now, this is more of a holding pattern,” said Fred Neumann, HSBC’s chief Asia economist. But I think it would be a false conclusion to say that China is now completely out of dependence.”

Besides trade, Beijing can offer Trump help on other issues, such as resolving the war in Ukraine, said Wang Chong, a foreign policy expert at Zhejiang University of International Studies.

Wang cautioned, however, that Beijing was prepared if relations fell apart. Even if the U.S. started with a small tariff increase, it would undermine investor confidence in China. “If tariffs are imposed, China will have to fight back,” Wang said.

Additional reporting by Arjun Neil Alim in Hong Kong