May 12th, China and the United States issued a joint statement, announcing the cancellation of the retaliatory tariffs previously imposed on each other, retaining only the basic tariff of 10%, and suspending the 24% tariff for 90 days. This phased outcome was seen as a signal of easing trade friction between China and the US, but many people still have doubts, such as how will the two sides play their cards during the 90-day suspension period? What kind of situation may arise after 90 days? The current U.S. debt crisis is approaching, and many other countries' tariff negotiations are unresolved, so there are still many variables in future negotiations between China and the US.

Regarding the game logic behind the talks and future trends, Observer Network interviewed Ding Yifan, former deputy director of the World Development Institute of the Development Research Center of the State Council, inviting him to analyze the strategies and challenges for China in this round of negotiations.

[Interview/Observer Network Zheng Leihuan]

Observer Network: Judging from public reaction, the results of this round of talks between China and the United States exceeded expectations. Mr. Ding, what do you think about the阶段性victory in this round of economic and trade talks between China and the US?

Ding Yifan: There were several things that exceeded expectations regarding the outcome of this round of economic and trade talks between China and the US. One was the speed at which the talks began. Generally speaking, negotiations as a means of strategy require a longer cycle, but this time an outcome was reached in a relatively short period. Second, the representatives of the Trump administration agreed to only impose a basic "reciprocal tariff" of 10%, with the rest to be discussed after 90 days. Compared to the original plan to impose a 145% tariff, this reduction was indeed unexpected.

In fact, both before and after the start of the negotiations, Trump has been spreading all sorts of rumors, hyping up things like "China wants to talk to us" and "We are getting along well." To some extent, this also shows that Trump is very eager to reach an agreement with China. Why does he behave this way? Simply put, because China's reciprocal countermeasures made Trump very uncomfortable, so he urgently wanted to find a way out.

You see the victory scene portrayed on the White House website—this is exactly what Trump wants. This inevitably makes us think of India not long ago, where despite being beaten by Pakistan, Modi still said in his speech that "Pakistan's air force collapsed like straw in front of us." Trump is the same; he sees China as the biggest nail in his shoe, and once he removes this nail, it will be easier for him to deal with the global trade war he initiated. Therefore, he urgently wants to address this issue (negotiate with China).

Trump, Photo: AP

Of course, for China, reaching an agreement is also a relatively positive signal to the market. Both sides are now imposing a 10% basic tariff, and other issues will be negotiated later. Not long ago, the UK and Trump just reached an agreement through negotiations, also with a 10% basic tariff.

However, looking at the current U.S. tariffs on China, they are still very unfair. In addition to the 10% basic tariff, the U.S. has imposed an additional 20% tariff due to the fentanyl issue, which is clearly an unequal tariff. Of course, the Ministry of Foreign Affairs has officially responded to this issue:

The U.S. used fentanyl as an excuse to unjustly impose two rounds of tariffs on China. China promptly took countermeasures including tariffs and non-tariff measures to firmly safeguard its legitimate rights and interests. These countermeasures remain effective.

However, from a certain perspective, I believe that China and the U.S. may not have reached the point of breaking ties immediately. For China, the impact of the trade war is far less severe than the impact on the U.S., so we can continue to push for concessions from the U.S. on the fentanyl issue during negotiations. For Trump, enduring another month would be unbearable. Initially, the U.S. imposed such high tariffs on China, and now they have all been canceled, indicating that China won the first round. Overall, I feel that China at this stage does not want to completely break ties with the U.S., and still needs to give them face.

Timeline of U.S.-China economic and trade struggles since Trump's second term.

Observer Network: From April 2nd when Trump announced the "reciprocal tariff" policy to May 12th when the joint statement was released, Trump initially showed extreme hardness, then said "China will soon call us," and later kept leaking wind that "we are always in contact with China, and China really wants to talk to us," until finally he gave in directly. How should China currently understand, judge, and respond to Trump's administration's characteristic of "changing faster than flipping a book"? I noticed that many people are also worried that Trump may continue to change his stance in the future.

Ding Yifan: The biggest characteristic of Trump is uncertainty, so we cannot get too excited too early. Don't forget, this negotiation is just a temporary halt; only a 10% tariff will be suspended for three months, but what happens after three months? Will the U.S. side have other conditions? If so, Trump will definitely bring them out to make more trouble. Therefore, this is an unreliable thing because Trump never adheres to agreements.

Hence, we must prepare for Trump to come back at any moment. A basic pattern that can be foreseen is: one, Trump will unjustly accuse China; two, he will use this fabricated charge to re-impose taxes on China.

We must understand that Trump lowered his stance because the cost of continuing to impose tariffs is something the U.S. cannot bear, while China is the opposite. Now there is a misconception, or Americans might have a misconception, that trade is China's weakness rather than America's. From this perspective, if we simply adopt the mindset of "being lenient where possible," it will be difficult to deal with someone like Trump.

Observer Network: The joint statement mentioned that "the 24% tariff will be suspended for the initial 90 days." Previously, Trump had also mentioned a 90-day deferral when negotiating with many other countries. What do you think is the most important handle or core goal for China in Sino-U.S. economic and trade negotiations during these 90 days?

Ding Yifan: A very important matter is the U.S.'s debt problem. There will be problems with U.S. debt within 90 days—the bargaining chip we can use in negotiations. Currently, the Trump administration needs a large amount of financing to get through this debt hurdle, but given Trump's current poor credibility, his financing costs are quite high. Moreover, it is very difficult for the U.S. to issue bonds now; without high-interest loans, they cannot borrow money. If Trump cannot borrow money continuously, a debt crisis may occur, so he must find a way to get through this period now.

In fact, last time in 2008, the U.S. also encountered similar problems, and China helped the U.S. out. It must be noted that relations between the Bush administration and China were relatively good at that time, so China supported the U.S. back then. But will we help the Trump administration now? To some extent, it still depends on his attitude, but I think today's China will no longer be so accommodating to the U.S.

Observer Network: Previously, Japan also threatened or manipulated the U.S. by hinting at the possibility of selling off U.S. Treasury bonds.

Ding Yifan: Yes, because China and Japan are the top two largest creditors of the U.S., they both hold the U.S. Treasury bonds as leverage.

Trends in holdings of major U.S. Treasury bond holders, with colors representing "creditors" from left to right: Japan, China, the UK, Luxembourg, the Cayman Islands, Canada, Belgium. Chart by Financial Times.

Observer Network: The joint statement also mentioned that China and the U.S. will establish an economic and trade mechanism. What topics and details do you think are noteworthy in this round of Sino-U.S. economic and trade consultations compared to the first round of the Sino-U.S. trade war?

Ding Yifan: Last time during the trade war with Trump, our experience was relatively limited, so although many commitments were made last time, after Biden came to power, those tariff policies continued. I think after the previous clash with the Trump administration, we are now better prepared in terms of experience, so we can deal with Trump's "blackmail" and "extortion" more calmly. However, the most important thing is that we must clearly recognize the current high level of uncertainty in the Trump administration, and this is crucial for strategic judgment.

Observer Network: Besides the U.S. debt mentioned earlier, what other means can we use to gain leverage over the U.S. in economic and trade negotiations?

Ding Yifan: The U.S. is a country highly dependent on China's supply chain. For example, the U.S. requires China to relax restrictions on rare earths, otherwise its downstream industrial chain will collapse. China currently holds the U.S. industrial chain in the rare earth supply sector, and it is unlikely to relax regulations easily in the future. Even if we do relax regulations, it should be done reciprocally, such as the U.S. first lifting restrictions on Chinese chips.

Additionally, regarding the fentanyl issue, it is clearly a pharmaceutical issue. If the U.S. requests cooperation from China to crack down on illegal merchants, it is entirely feasible. However, now Trump has linked this issue with tariffs, which is somewhat unreasonable. So I think there are many things that need to be resolved once the U.S. clarifies its position.

Now it seems that whenever Trump makes concessions on tariffs, we are satisfied, but that's not the case. He will continue to push for further concessions on other issues. Sometimes, we indeed have the mindset of "being lenient where possible," which is of course a traditional Confucian thought.

But I must remind everyone: in fact, we are facing a U.S. government with absolutely no credibility. When you show leniency, Trump will instead see it as a sign of weakness and incompetence on your part. This is Trump's style of operation. Therefore, I think that in these issues and future Sino-U.S. negotiations, China must have a clear understanding of this.

On May 10th to 12th local time, senior economic and trade talks between China and the U.S. were held in Geneva, Switzerland. Photo taken when the Chinese delegation left the venue. Reuters.

Observer Network: Actually, the international community has clearly seen that after the U.S. imposed retaliatory tariffs on China, China did not yield, and successfully forced the U.S. to retreat in its tariff offensive. Mr. Ding, what do you think is the significance of this阶段性victory for China on the international stage?

Ding Yifan: American media themselves admit that China stood firm against the U.S. and achieved results, and the U.S. had to respect China. The consequences of China countering the U.S. were seen by all countries, which is very important. Only a tough response can win respect; otherwise, no respect will be gained.

However, I think it is highly likely that Trump will continue to use tariffs to talk to China in the future because we haven't yet caused enough pain to the U.S. Now, the U.S. doesn't truly feel the competition with us; it thinks the negotiations were easy. We might think that Trump would be grateful for China's concessions, but Trump is not like that.

However, this negotiation itself is certainly a阶段性victory, as the U.S. made significant concessions from the "blackmail" of such high tariffs. But I think it is necessary to say this: we should not become overly complacent because of one victory and think that Trump has admitted defeat and we have won. What if Trump tries to deal with China again? So, as always, we must have a clear understanding of the Trump administration.

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