Trump hints at a potential negotiated reset in U.S.-China relations

Donald Trump made a surprising decision to postpone tariffs on China on his first day back in the White House, choosing not to label it as a threat. This move opens the possibility for a reconciliation, as both nations seem inclined to seek mutual benefits rather than inflict damage on one another.

In his inaugural address, the U.S. president did not mention China, which had previously been a key adversary during a trade conflict, despite asserting that tariffs would make the United States “rich as hell.” This omission suggests a willingness to engage in new negotiations with the world’s second-largest economy.

Additionally, Trump postponed the ban on the China-based short-video platform TikTok, proposing an unprecedented arrangement where the U.S. could hold a 50% stake in TikTok’s American operations in exchange for allowing the app to continue operating, indicating its potential value in the hundreds of billions.

As Trump embarks on his second term, analysts note that both Beijing and Washington require a new strategy to pursue their objectives and protect their interests, although lingering issues from the 2020 trade agreement may complicate the currently positive atmosphere.

During his first term, Trump developed a rapport with Chinese President Xi Jinping, with both leaders hosting each other in their respective countries. However, this relationship did not prevent the escalation into a trade war characterized by reciprocal tariffs and disruptions to global supply chains. Currently, both sides seem more inclined to return to the negotiation table rather than resume previous hostilities.

Alicia Garcia Herrero, chief economist for the Asia Pacific at Natixis, stated, “Trump is seeking a deal. If he weren’t, he would have taken aggressive action against China from the outset. His campaign rhetoric was highly confrontational towards China, yet he hesitated to follow through on that stance immediately.”

She further explained, “China stands to benefit as their tariffs will likely remain limited. They are prepared to offer Trump concessions to facilitate an agreement, whether it involves financial services or adjustments to the renminbi. If he desires a stronger renminbi, they might accommodate that, at least temporarily.”

In the event of another trade conflict, China would be in a more precarious position compared to when Trump initially imposed tariffs in 2018, facing significant challenges such as a severe property crisis, sluggish domestic demand, and a youth unemployment rate of 16%.

On Tuesday, Chinese stock markets experienced volatility as investors attempted to interpret Trump’s intentions regarding China. Last week, during a phone conversation, Xi and Trump agreed to establish a strategic communication channel to address “major issues.” The 47th U.S. president also mentioned the possibility of visiting China later this year.

CHINA HAWKS

Challenges may arise from various sources, including individuals within Trump’s inner circle. Marco Rubio, recognized as a staunch advocate for a tough stance on China, was appointed Secretary of State shortly after the president began his second term. However, other officials in Trump’s administration might hold differing perspectives on China. Elon Musk, who was selected by Trump to head an advisory group focused on enhancing U.S. government efficiency, has significant business interests in China and has spent years fostering strong relationships with Chinese leadership as the CEO of Tesla, potentially influencing China policy as well. Analysts suggest that Trump will view himself as the primary diplomat for the U.S. and may not depend on Rubio, who remains under sanctions imposed by China in 2020, or his choices for commerce secretary or trade representative.

“The consolidation of power by Trump is unparalleled in recent U.S. history. He may be the only individual China can engage with from a practical standpoint,” stated Bo Zhengyuan, a partner at the consultancy Plenum based in Shanghai. “However, it hinges on how effectively Trump can navigate the U.S. political landscape, as there is already a prevailing consensus that China is the foremost adversary of the U.S.”

If a pragmatic approach prevails, there exists a possibility for China to persuade Trump to reverse the export controls implemented by the Biden administration, which were designed to limit China’s advancements in critical technologies like semiconductors, according to analysts. “Trump fundamentally operates as a businessman; his focus is more on practical considerations rather than ideological ones,” remarked Wang Dong, a professor of international relations at Peking University. “Other issues, such as geopolitical concerns and the Taiwan situation, are secondary for Trump,” he added, highlighting that the self-governing island, which Beijing claims, was not mentioned in his inauguration address.

It remains to be seen if the United States will adopt a more pragmatic and rational approach, allowing both nations to strengthen China-U.S. relations and resume a path of healthy, stable, and sustainable development, Wang stated. He added, “If this is achieved, it could be likened to a ‘Nixon 2.0.'” Former U.S. President Richard Nixon’s visit to Beijing in February 1972, during the peak of the Cold War, was instrumental in establishing formal diplomatic relations and reintegrating China into the global community.