CHINA’s defiant stance in negotiating a tariff truce with the US has convinced some countries they need to take a tougher position in their own trade talks with the Trump administration.
The pause reached a week ago gave structure to what promised to be prolonged and difficult rounds of talks between Washington and Beijing, which still faces average US import taxes near 50% when past levies are factored into the 30% rate agreed to in Geneva, Switzerland.
Yet US President Donald J. Trump’s willingness to retreat so much from the earlier 145% duty on China surprised governments from Seoul to Brussels that have so far stuck with the US’s request to negotiate rather than retaliate against its tariffs.
After China’s tough negotiating tactics earned it a favorable — albeit temporary — deal, nations taking a more diplomatic and expedited approach are questioning whether that’s the right path.
“This shifts the negotiating dynamic,” said Stephen Olson, a former US trade negotiator who’s now a visiting senior fellow with ISEAS — Yusof Ishak Institute in Singapore. “Many countries will look at the outcome of the Geneva negotiations and conclude that Trump has begun to realize that he has overplayed his hand.”
Left for now at 10%, the higher bespoke rates will kick in unless deals are signed or postponements are granted before a 90-day suspension ends in July.
While officials are loathe to signal publicly any hardening of their approach, there are signs particularly from larger nations that they’re realizing they hold more cards than previously thought and can afford to slow the pace of negotiations.
South Korea’s leading presidential candidate Lee Jae-myung said there’s no need to rush for an early agreement in trade negotiations with the US, criticizing the interim government for what he called a hasty engagement with the Trump administration.
Mr. Trump himself indicated last week — near the halfway point of the 90-day reprieve — that there isn’t time to do deals with about 150 countries lining up for them. So the US may assign the higher tariff rates unilaterally in the next two to three weeks.
While Mr. Trump also said that India was prepared to lower all tariffs on US goods, the nation’s External Affairs Minister Subrahmanyam Jaishankar told reporters that trade talks are ongoing and “any judgment on it would be premature.”
India’s Commerce Minister Piyush Goyal was scheduled to arrive in the US over the weekend for further negotiations.
“There are many countries that may learn from China that the correct way to negotiate with President Trump is to stand firm, remain calm and force him to capitulate,” said Marko Papic, chief strategist of GeoMacro at BCA Research.
JAPAN’S RETHINK
Japanese trade officials are scheduled to visit Washington this week. Japan’s Trade Minister Yoji Muto skipped a regional meeting last week in nearby South Korea that US Trade Representative Jamieson Greer attended.
Top negotiator Ryosei Akazawa, who leads Japan’s tariff task force, said earlier this month that he is hoping to reach an accord with the US in June, but recent local media reports indicate an agreement is more likely be reached in July, ahead of an upper house election.
Policymakers in Tokyo may be starting to think that it’s preferable to take time rather than make major concessions to wrap up things up quickly.
“Everyone in the queue is wondering, ‘Well, why have I been lining up?’” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis. “This deal let China jump the queue and also doesn’t have clear benefits for the US so it’s doubly painful for other countries watching.”
Even US officials are signaling that negotiations will take longer. Commerce Secretary Howard Lutnick told Bloomberg TV that talks with Japan and South Korea will take time. Treasury Secretary Scott Bessent last week said the European Union (EU) suffered from a lack of unity that was impeding talks.
“I think the US and Europe may be a bit slower,” Mr. Bessent said on Tuesday at a Saudi-US Investment Forum in Riyadh.
On Sunday, the Treasury secretary sounded optimistic about talks more broadly, adding that “we didn’t get here overnight.”
“With a few exceptions, the countries are coming with very good proposals for us,” Mr. Bessent said in an interview on CNN’s State of the Union. “They want to lower their tariffs, they want to lower their non-tariff barriers, some of them have been manipulating their currency, they’ve been subsidizing industry and labor.”
EU SKEPTICISM
Officials in Brussels viewed the US-China tariff announcement as leaving high tariffs in place and limited on several fronts, according to people familiar with EU discussions.
The meager negotiating gains for the US and the lack of a clear end game during the 90-day reprieve show how limited is Mr. Trump’s appetite to keep ratcheting up the pressure on Beijing, the people said on condition of anonymity to discuss private deliberations.
Valdis Dombrovskis during a news conference following the Economic and Financial Affairs Council meeting in Brussels on May 13.
“The trade landscape is becoming more fragmented” and “the deals achieved so far are not completely addressing the situation,” the European Commission’s top economic official Dombrovkis said in an interview in London on Thursday, referring to the China tariff truce and a UK-US outline of a deal announced days earlier.
The US-China arrangement may also show nations that the Trump administration isn’t immune to the pressures of domestic economic headwinds caused by tariffs.
“The economic pain is more immediate and broad-based in the US and this deal can be seen as the Trump administration acknowledging that,” said Robert Subbaraman, head of global markets research at Nomura Holdings Inc.
But only nations with economic heft and limited reliance on trade with the US may be able to act on that, according to Bert Hofman, professor at the National University of Singapore and a former World Bank country director for China. “It’s pretty risky for most countries to be tough on the US,” Mr. Hofman said by phone.
A prime example of that is Canada, which Oxford Economics said last week had effectively suspended almost all of its tariffs on US products.
Over the weekend, Canada’s Finance Minister Francois-Philippe Champagne disputed that, saying the government kept 25% retaliatory tariffs on tens of billions of dollars in US goods.
He said 70% of the counter-tariffs implemented by Canada in March are still in place, according to a social media post on Saturday. The government “temporarily and publicly paused tariffs” on some items for health and public safety reasons, he said.
Still, because China’s clout remains substantial as the world’s factory floor, other countries may have “to use more creative pieces of leverage,” according to Mr. Papic.
LACKING LEVERAGE
For Vietnam, one-third of its economy depends on trade with the US, and that lack of leverage means there isn’t scope to do much more than talk tough.
Vietnam, which was among the first nations to offer purchasing additional US goods such as Boeing Co. aircraft to close the trade surplus, slammed Mr. Trump’s tariffs earlier this month as “unreasonable.”
If larger nations do want to get confrontational, one area where they may have room is on services trade, said Katrina Ell, Moody’s Analytics head of Asia Pacific economics.
The EU, Singapore, South Korea and Japan are among nations that have the biggest services trade deficits with the US, Moody’s Analytics data show.
“China has too much leverage over the US for the US to continue with its hardline stance whereas that’s not the case for many other economies,” Ms. Ell said by phone. “That’s what we need to keep in mind is leverage and who has that leverage.” — Bloomberg
