Trump hopes but probably does not expect China to capitulate and seek an audience with him to get relief from the punishing duties on their exports to the US. China’s refusal to bow to unilateral bullying aimed at upending the multilateral trading system and its willingness to “fight till the end” suggests that President Xi Jinping is unlikely to pick up the phone to ask for a meeting.
How long the tariff impasse will last is anybody’s guess. There may already be US-China backchannels at work. Some analysts view the 90-day pause on most of Trump’s “Liberation Day” tariffs as an about-face after getting spooked by the bond market’s reaction. We wager that he is unlikely to do a second about-face. In other words, he won’t postpone or suspend the 145 per cent tariffs on China.
However, on April 11, Trump exempted smartphones, computers, semiconductors and other electronics – accounting for almost a quarter of China’s exports to the US – from the punitive tariffs. Xi may view the pause as an indication of US flexibility but we believe that the exemptions, which might not even last long, aren’t enough to persuade him to call Trump. China is also sensitive to not come across as backing down.
This stalemate puts the world in an unnerving and dangerous place. Domestic pressures could force the leaders of both the US and China to escalate the conflict into other economic areas beyond trade: we could see Washington delist Chinese stocks or Beijing sell off US Treasury bonds. Amid such febrile economic conditions, a crisis in the South China Sea or Taiwan Strait could escalate into military clash.
The impasse provides an opportunity for the Association of Southeast Asian Nations. The 47th Asean summit, to be held in Kuala Lumpur, Malaysia, in October, could offer a face-saving way out for Trump and Xi. Asean should leverage its convening power to invite Trump and Xi – or key officials in their administrations – to Kuala Lumpur so they can talk it out.
