The world needs a truce to the trade war

It has now been a month since US President Donald Trump put his sweeping tariffs on most of the world on hold. But heightened tariffs on Chinese goods remain in force, inviting retaliatory duties for American goods.

When the two largest economies are at war, the rest of the world cannot be at peace. But ahead of any other country, these two superpowers appear to be the first victims of the bolts they shot at each other. 

Both "reciprocal" and "retaliatory" tariffs have started biting, and both the US and China are feeling the pinch. As Trump marked his 100 days in office early this month, quarterly data showed the American economy shrank for the first time in three years and the trade gap jumped to a record high in March as traders boosted imports to stockpile Chinese goods ahead of new tariffs. 

Though Trump has shrugged off the negative trend, saying those are fallouts from the previous administration,  American businesses were alerted by warnings Trump had aired against China months before he took office.  

Meanwhile, China saw its imports hit a two-decade low. German firms in China said they are being affected by US tariffs on goods from China, and looking to focus more on the local market. China's central bank and financial and stock market regulators had a meeting last week to decide ways to help its manufacturers and exporters overcome the shocks. 

Beijing has offered a raft of measures and stimulus — such as cuts in policy rate and reserve requirement ratio to make more funds available at banks to support firms hit by US tariffs. To boost domestic consumption and tech innovation, China has created a relending fund. Firms listed in foreign countries will be encouraged to return to the domestic stock market amid threats that American stock exchanges might de-list Chinese companies.

China's imports to the US also fell significantly. While China is frantically trying to find markets for its goods both at and abroad, it will take another month for American businesses and consumers to feel the impact of falling trade with China. Though Trump wants American and foreign firms to make goods in America, they find the idea absurd in most cases as goods manufactured in America will be expensive for most Americans and unviable for producers. If Trump sticks to his "Liberation Day" proclamation on China, American shelves might go empty in the coming months.

Meanwhile, American businesses and investors, while expecting some reversal in US tariffs and a cut in Fed's policy rate, are also trying to make peace with the tit-for-tat tariff war. US stocks, including techs, have overcome most of the declines as an immediate impact of Trump's tariff announcement.   

Though the full blow of the tariff war has yet to be felt worldwide, countries are coming up with their own survival plans. 

The European Central Bank has recently cut policy rates to help the bloc's economy prepare for any trade shock. The EU is planning to levy additional tariffs on American goods worth over $100 billion in case the ongoing negotiations with the US fail to relax US tariffs on the bloc's goods worth over $600 billion. The US lowered its duties to 10% for most of EU exports except steel and aluminum, which face 25%.

Trump seems to have not stopped yet. Earlier this week, he announced a 100% levy on foreign movies to save "dying Hollywood," which will cost American cinegoers more.

While Trump has targeted both friends and foes alike, Chinese President Xi Jinping has started to woo his neighbours more intensely. He chose Southeast Asia as the destination of his first trip since the latest wave of tariff war with the US.

Though roughly 20% of its exports used to be meant for the US, China has trade with some 150 countries and a quarter of its goods are shipped through a third country, which is among its Southeast Asian neighbours. China has also intensified efforts to expand markets in European and Latin American countries. Hong Kong has decided to maintain its free-port and open business environment status to serve as a hub for mainland China and other Asian markets, said its Financial Secretary Paul Chan Mo-po, who was in Italy recently to attend the Asian Development Bank's annual meeting.

Apart from his efforts to reshape global trade, the Chinese leader seems to be actively pursuing his geopolitical agenda. While the US has sealed its much-anticipated mineral deal with the war-torn Ukraine, Xi headed for Moscow to join allies at the 80th anniversary celebration of Russia's victory in World War 2.  

Vietnam has gained its significance further as among the most-favoured trade and investment destinations in Asia, with both Chinese and Japanese top leaders visiting Hanoi in recent weeks.

Good news is, at the time of writing this report, American and Chinese officials are meeting in Switzerland, airing a ray of hope for a cooling effect on the trade war. Chinese Vice Premier He Lifeng met for about eight hours with US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer on the first day of the talks. As their high-stake negotiations continued for the second day on Sunday, Trump in a Truth Social post called it "a very good meeting" with China where "many things discussed, much agreed to." 

There was no official briefing on the first round of US-China dialogue since the fresh tariff war broke out. But the talks are believed to have major implications for the global economy and result in a wide range of outcomes, as South China Morning Post puts, from a "soft deal" to a "mutually acrimonious departure".    

The world cannot absorb the shocks of 145% "reciprocal" and 125% "retaliatory" tariffs on goods worth billions of dollars. Even if tit-for-tat tariffs do not come down to previous levels, the world needs a truce in the trade war between the two giant economies. Such wars, be it with tariffs or weapons, are not limited to the warring parties alone, they make the whole world's population suffer and pay the price, even long after the hostilities end.

Sketch: TBS