China and US begin diplomatic dance in restarting trade talks

SHENZHEN/CHONGQING – China and the United States are finally ready to talk trade, after weeks of tough posturing aimed at strengthening their hand ahead of what analysts expect to be protracted negotiations over tariffs.

Chinese Vice-Premier and economic czar He Lifeng

will meet US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer

this week in Switzerland, officials from both countries said on May 7.

This will be the first publicly known trade talks between both sides since the US ratcheted up tariffs on Chinese goods in April.

Both sides are coming to the table as punishingly high tariffs inflict pain on the world’s two largest economies. Analysts tell The Straits Times that both sides need a deal: China to protect jobs and factory activity, and the US to combat rising prices.

Still, this is only the beginning of what is expected to be a long-drawn process, given their deep underlying differences.

“I think both sides concluded that at this point, discussions could be commenced without creating the appearance of capitulation on either side,” said former US trade negotiator Stephen Olson.

The US and China engaged in a show of strength in April, each hitting back in a series of retaliatory tariffs that brought Washington’s additional levies on Chinese imports to 145 per cent, and

Beijing’s to 125 per cent

.

“Both countries are feeling pressure to provide a bit of reassurance to increasingly nervous markets, businesses and domestic constituencies,” added the senior visiting fellow at the ISEAS – Yusof Ishak Institute in Singapore.

Investors turned optimistic that officials on both sides are attempting to cool their trade tensions. The Dow Jones Industrial Average rose 0.4 per cent while the Nasdaq Composite was up 0.2 per cent soon after opening.

Unlike many other countries that rushed to negotiate with the US shortly after its tariff salvos, China has played it cool.

In comparison, Washington has seemed more eager to cut a deal, with US President Donald Trump earlier stating that trade talks with China were under way.

Beijing denied his claim then, and has now framed its coming to the table as a response to the US’ requests for dialogue. “After a careful assessment of the US messages, China has decided to engage with the US side,” a Commerce Ministry spokesperson said on May 7, citing “global expectations, national interests, and calls from the American industry and consumers”.

The talks will take place on May 10 and 11, Mr Bessent told US media outlet Fox News.

There are signs of a growing need for some kind of understanding to be reached.

Mr Xu Tianchen, a senior economist at the Economist Intelligence Unit in Beijing, said: “Both sides have vulnerabilities.”

The US is set for surging import costs and businesses slashing investments, on top of the shipping chaos and jittery financial markets it already faces, he said. On the Chinese side, the loss of export orders, firms going out of business and unemployment are genuine concerns.

Already, some factories in China that serve the US market – which accounted for 14.7 per cent of China’s total exports in 2024 – have had to pause production and put workers on leave. Some 16 million jobs are involved in producing exports to the US, investment bank Goldman Sachs has estimated.

China’s financial authorities on May 7

announced more measures to shore up the economy

and help businesses, on top of earlier-outlined support for jobs and for exporters. Beijing has also begun to exempt some US imports from its own retaliatory tariffs, to cushion the impact on its economy, Bloomberg reported.

The latest measures – which include unleashing at least one trillion yuan (S$178 billion) into the market to prop up companies and a 500 billion yuan loan facility for consumption and eldercare sectors – come into effect as early as May 8, and are seen as a bid to boost Beijing’s hand ahead of the trade talks.

Analysts see the upcoming talks in Geneva as the first step in a longer negotiation towards a broader plan, for which the bilateral Phase One deal could serve as a foundation.

The Phase One trade deal that Mr Trump signed with Beijing in 2020 effectively ended a nearly two-year trade war between the two countries. It required China to increase purchases of US exports by US$200 billion (S$258 billion) over two years. But the Chinese did not meet this target after their economy was crippled by the Covid-19 pandemic.

Mr Xu believes that talks this time could unfold in two stages. The first would entail both countries lowering their “egregious tariffs” – something which he believes can be “achieved relatively easily, given the (tariffs’) devastating economic consequences, and without much concessions”.

The talks will become difficult in a second stage when they involve “broader, more fundamental issues like trade balance, market access and tech competition”, Mr Xu noted.

“Reaching a broad deal will be much more difficult than when the Phase One deal was being negotiated,” he added.

Mr Olson said that he expects a “Phase One deal on steroids” to be on the table when both sides enter into talks for a longer-term deal. The newer pact is likely to go further to include the “resolution of specific corporate issues, investment, fentanyl, and perhaps even security issues”, he said.

“Any final deal will require the active engagement of both presidents,” Mr Olson said.

For now, Mr Bessent has sought to manage expectations about what the upcoming dialogue with China will entail. “My sense is that this will be about de-escalation, not about the big trade deal,” he told Fox News.

Noted Mr Olson: “The systemic frictions that bedevil the US-China trade relationship will not be solved any time soon. (The Geneva talks) will only produce anodyne statements about ‘frank dialogues’ and the desire to keep talking.”