Deep Dive
Shownotes Transcript
The US and China are locked in a bitter trade war. We've got triple-digit tariffs and restrictions on everything from chips and planes to critical minerals and packages from Hong Kong. And either side appears willing to back down.
On this weekend episode of Reuters World News, our correspondents in Beijing and Washington help us make sense of this moment, how we got here, how we might get out of it, and what it means for the world. I'm your host, Jonah Green. ♪
I'm joined now by Don Durfee, our U.S. foreign policy editor in Washington, D.C., and Antoni Sladkovsky, our chief politics and general news correspondent in Beijing. Hello, both of you. Thanks for joining me today. Hi, thanks. Glad to be here. Thanks for having us.
So, Don, Trump is not the first president to use tariffs against China to enact some policy goal. Joe Biden did it. But obviously, this is at a whole other level. So why is Trump singling out China like this?
Well, in Washington, China is now really seen as the main U.S. rival, both economically and strategically. And that's a consensus across both parties. And for the Trump administration, particularly, you know, they really see China as the country to blame for what they see as the hollowing out of U.S. manufacturing over the past decades. All right. So ever since China joined the World Trade Organization, a lot of U.S. manufacturers
manufacturing has indeed migrated to China, which has become the world's manufacturing powerhouse. And a lot of US policymakers also see China as a disruptor of the international trade system. And those are things that they hope to change over time. Now, there's other more specific issues that they have with China. They're worried about the pressure that China puts militarily on US allies in the Asia-Pacific.
And there's fentanyl. Fentanyl is a major issue in the United States. Trump administration has laid that out as one of its top foreign policy goals. And they see China as a culprit. And the administration feels like that China hasn't done enough. And so for all of those reasons, they see China as kind of the number one country that they want to target with their tariff policy.
And so, Antony, how is China responding? I think China really felt quite shocked and surprised by the level of the tariffs that Trump unveiled. And they have been preparing internally. Basically, since Trump won the election in November, they were studying the way Trump
pressured them during his first term. China buys far fewer goods from the U.S. than the other way around. So even if they deploy the same level of tariffs, that's kind of not enough. So they also needed to come up with other non-tariff measures such as curbs on exports of minerals and cyanobacteria.
sanctioning American companies, which is not something they used to do a whole ton, but they have really kind of broadened out their policy response toolbox here and then decided to unleash it in response to Trump's tariffs. And tell us a bit about what the mindset is within the government to the extent that we know. What does this response look like?
What we've reported is that it's not necessarily the voices within the establishment that may be called for a slightly more measured or targeted response, but it's the propaganda department of the Communist Party that kind of really frames the debate about the response internally. It's really been kind of driven, I think, fair to say, more by pride and politics than a very kind of
calculated deliberations. They've taken this all-of-government combative approach. They've been holding meetings until late at night. One of the key things that the bureaucrats involved in the response have been ordered to do is to kind of, they were put on this wartime footing
which effectively means cancel your holidays, have your phone on 24/7, you must always be responsive, you must always be available, do not leave Beijing. This is basically a state of a heightened emergency.
And I saw government spokespeople posting defiant clips on social media featuring Mao Zedong saying, we will never yield, which gives you a kind of flavor about their posture right now. Exactly. And it again speaks to the fact that the propaganda department has the reins in terms of response. We know that previously China has
under Xi Jinping, adopted this posture in diplomacy called the wolf warrior diplomacy, where they're very aggressive, very forceful kind of posture. They've kind of dialed that back quite considerably. But now we're seeing there now, maybe they're not going back to full wolf warriorism, but they're definitely sounding these very defiant messages, including clips of Mao from 1953, which is the last time during the Korean War where two countries were
on opposite sides of a real kinetic war. So that's a very clear message. It also, you know, Mao, during Cultural Revolution, Chinese people here suffered incredible poverty as well and incredible hardship. And I think the message could also be interpreted as we
We're ready to do that one more time again. Are you guys ready? I mean, it's a good point. Both Xi and Trump will feel political pressure if this trade war causes palpable harm to their economies. But what are the pressure points for each? Let's start with Don with the view from D.C.
The main thing, of course, is the risk of an economic recession. President Trump inherited quite a strong economy from Joe Biden. And Trump knows that one of the main reasons that he secured an election win in November is because of inflation. You know, Americans were unhappy with high prices. Now, with this tariff war raging, and remember, it's not just China. This is a global thing that's happening. A
A lot of economists are warning that there is a decent chance that the U.S. economy tips into recession. Economic pain in the U.S. translates into political pressure. You're already starting to see some members of Trump's Republican Party complain about the tariffs, complain that maybe this isn't the right strategy. So he will definitely start to feel some real political pressure as this trade war ramps up and as it affects the economy. So the question really is,
How long can he endure that? His risk tolerance is a lot higher this time around than it was in his first term, maybe because, you know, he's not up for reelection. But he's got a whole party around him, and they will be worried about the political fallout from all of this. And what's the view from within China? If you could sort of give us a sense of how the economy was before
faring even before all of this took effect and what, if any, pressures Xi might be under as this trade war heats up.
Yeah, I mean, similarly to the United States economy, domestic economy is the biggest concern. And China came to this conflict both weaker, but also better prepared than last time around. Weaker in the sense that it's reeling from this massive real estate bust. And this has meant that economic growth is still around 5% or so that these government planners would want you to believe. But
Youth unemployment, for example, is so high that for a period of time, the government actually stopped publishing those numbers because they were so embarrassing. Chinese economy in general is very much oriented towards exports. And what China has been doing, even a little bit since before Trump got elected, is, you know, a very kind of heavy pivot economy.
towards domestic consumption because they know they won't be able to find markets for all of those goods that now will be much more difficult to sell to the Americans. And other countries like Europe, but also developing countries ranging from Brazil to Turkey to elsewhere, they're also putting up tariffs because they also don't want to be de-industrialized. They also don't want to be flooded with cheap Chinese goods. And so China has been sort of trying to make some slow
adjustments and try to think about ways of spurring sort of domestic consumption. That has traditionally not been their kind of forte. This requires very sort of deep structural changes because, you know, a lot of Chinese people don't want to spend a lot of money because they're worried about a big hospital bill or what happens during retirement because the safety net here is not really very robust. So those are all the pressures and challenges that China faces.
For example, we have Xi Jinping already traveling to Vietnam, Cambodia, and Malaysia and discussing trade with those countries and trying, you know, right now it's a little bit shifted from a bilateral game to a multilateral game where both sides are trying to court other trade partners and pull them to their side against the other superpower. Right. And because Trump is putting tariff pressure on so many other countries,
you see some of them now begin to reconsider their trading relationship with China. As you mentioned, Xi Jinping was in Southeast Asia this past week, and he said he was trying to get countries to resist what he calls bullying by the U.S. Now, here was Trump's response to Xi's meeting with Vietnam's top leader in Hanoi. I don't blame Vietnam. I see their meeting today. Isn't that wonderful? It's a lovely meeting.
The meaning, like trying to figure out how do we screw the United States of America? So if you're China, what are you doing to court these countries away from the U.S.? First of all, China is a big source of a lot of the, you know, manufacturing that has relocated from China to Vietnam so that they can continue exporting to the United States. So a lot of the companies that are now producing in Vietnam are Chinese.
Chinese subsidiaries are linked to China. So they might be beholden to Beijing. And I think that there is potentially some kind of a threat that Xi Jinping could also sort of hint at.
I think there is also carrot, right? So things like trains, for example, China has been sort of helping Vietnam modernize its train network and has been providing other investments. So there's also those economic incentives. But I think the biggest challenge that China faces when it comes to dealing with countries like Vietnam is that it can't really offer the kind of market that the United States can.
So nobody's going to buy the sneakers produced in Vietnam and China. China can produce its own sneakers and its own garments. And I think this is really a big challenge. There is really very few substitutes for the American consumer. And I think that Vietnam is in a very unenviable position of having to choose between the two superpowers. I might just add there's a strategic dimension to this as well, right? Which is that across Asia, a lot of countries have really felt...
threatened by what they see as a more aggressive military posture by the Chinese in recent years, both in the South China Sea and against Taiwan, and the waters near Japan and Korea as well. And under the Biden administration, there was a real push to try to solidify alliances with old allies like Japan, Korea, and the Philippines, and sort of kindle some new alliances or at least partnerships with countries like
Vietnam and India and others who felt threatened by China. Those worries still remain for those countries. And so those are all things that help bind those countries to the United States. The question is whether Trump's tariff policies, which are applying pressure on all those countries from a different direction, whether that serves to undermine those alliances that have been really crucial for the United States. So it does come at a bigger cost. And I don't think we know what the answer is just yet on how that'll play out.
Beyond tense trade disputes, which we can all see on the news, what is the relationship between the U.S. and China? Are there areas of cooperation that are now imperiled by this conflict that we might not be seeing? The Biden administration works pretty hard to kind of reestablish ties with the Chinese on a range of things from fentanyl
commercial disputes, other issues such as military-to-military exchanges, including contacts at a theater commander level. There was a point in time when those links were kind of cut, mostly from China to punish the US for Nancy Pelosi's visit to Taiwan, and also over allegations that COVID originated in Wuhan and other issues. So there was this period when
there were really very few interactions. And then in the sort of in the second half of the Biden administration, a lot of these have been painstakingly reestablished. And for example, we have, you know, not a lot of people know this, but we have
A treasury group, a kind of group that is set up in case of a financial banking crisis, all of these contacts are now on hold and are at risk of being severely damaged by this one dispute. So this has really broad, wide-ranging impact across the board, and it's a hugely destabilizing factor at a time, as Don said.
when China's posture in the Indo-Pacific continues to be threatening to China's neighbors in the region. I want to talk about the endgame here, and I will ask how we get out of this. But I first think it might be useful to understand what it is that Trump is trying to achieve. There have been a lot of different explanations in the past few weeks as to what the administration wants to happen. But I think at the core of it is Trump's
Trump's desire to bring jobs back to the United States. Don, how feasible is that?
China is the best manufacturer in the world for a reason. They've really developed some exceptional abilities and specialized expertise. It takes a long time to replicate that kind of thing in the United States, especially in some more advanced manufacturing areas. So it's a question of how quickly can the U.S. economy pivot and develop those capabilities. There's another question, which is things like shoes and T-shirts and
Does the American government really want that kind of manufacturing to happen here? It's low-margin work, generally doesn't pay very well. It would mean very expensive sneakers and T-shirts. And so there is a question that economists have of whether this goal of shifting manufacturing back to the United States by using tariffs is something that is achievable in the end. And so given China's defiant posture and Trump's appetite for risk,
How does this end? How do we get out of this? My sense is that we'll just have to see who blinks first here. As we've talked about, this trade war puts enormous domestic political pressures on both the Trump administration and on Xi Jinping. China might be in a little bit of a better position to weather that politically, but who knows? So I don't know how this ends, but my guess is that they'll try to find some sort of a face-saving way out so it doesn't look like either side is
It's capitulating. Worth, you know, sort of looking back to Trump's first turn when you had a trade war, a much smaller scale trade war, but nevertheless, it was a trade conflict. And kind of the way that that ended was Trump and Xi agreeing to a new sort of trade deal. China had agreed to buy a whole bunch of U.S. soybeans and other products. And in return, Trump eased tariffs on China and called it a great victory.
In fact, looking at what happened in the end, China bought very little of the goods and services that it had committed to doing. So it's unclear whether that was really a success. But we could see something similar this time. And, you know, even if Trump likes tariffs, I don't think he envisioned to be where he's at right now. And I think once the economic realities start biting,
both leaders will be maybe a little bit more sort of incentivized to reconcile. The Chinese have been trying to reestablish the kind of relationship that the foreign minister here, for example, and a top diplomat has had with the U.S. National Security Advisor, Jake Sullivan, and he's been trying to do the same with Mike Waltz or even with Marco Rubio. And I think there's not been a ton of willingness on the Trump side
side to kind of engage in these conversations. I think on the Trump side, they would say that we've been doing this for 30 years and China has a trillion dollar surplus with the world. So, you know, maybe enough of this idle talk. But at some point, there's going to be, I think, some kind of recognition that we need to sort of start talking. And Trump has said multiple times that he wants to just talk directly to Xi. But I think within the system here, it's just very difficult for the leader to
pick up the phone or maybe even meet in person and and kind of like hammer out the details directly with trump it's just not the way the system is set up my bet would be on some kind of lower level engagement and then and then building up some kind of consensus and then and then sort of full-blown negotiations but this is not going to play out over days i think we're talking coming weeks and months thanks again to don and ant for their time and expertise
If you want to follow along with the dizzying developments on this ongoing trade war, make sure to check out Reuters.com or the Reuters app, where our journalists will be following every twist and turn.
Reuters World News is produced by Gail Issa, David Spencer, Christopher Waljasper, Sharon Reich-Garson, and me, Jonah Green. Our senior producers are Tara Oaks and Carmel Crimmins. Our executive producer is Lila DeKretzer. Sound design and musical composition by Josh Sommer. Make sure to follow us on your favorite podcast player. We'll be back on Monday with our daily headline show.