This weekend, top US and Chinese officials will meet in Geneva for trade talks aimed at easing tensions. With tariffs between the two largest economies at record highs—some hitting 145%—the stakes are serious. Both sides want relief, but the path forward is uncertain.
Trump Team Seeks Tariff Cuts, Rare Earths Relief in China Talks
The Trump administration is weighing a dramatic tariff reduction during weekend talks with China to de-escalate tensions and temper the economic pain both are already starting to feel.
People familiar with preparations for the talks, which are due to begin in Geneva on Saturday, led by US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, say the US side has set a target of reducing tariffs below 60% as a first step that they feel China may be prepared to match. Progress in two days of scheduled discussions could see those cuts being implemented as soon as next week, they said.
The talks are likely to be exploratory and more geared toward airing grievances rather than hammering out solutions to the long list of problems each side has with the other, said the people, who asked not to be identified. The situation is fluid, meaning there’s no certainty that tariff levels will decline in the near term, they said.
Also high on the US wish list is securing the removal of China’s export restrictions on rare earths used to make magnets, as a range of industries face disruption, the people said. Progress has also been made on the issue of fentanyl. The people said separate talks could soon occur on reducing Chinese exports of the ingredients used to make the opiate, which has led to a surge in overdose deaths in recent years.
Both the Treasury and the office of US Trade Representative Jamieson Greer, who is joining Bessent in the talks, declined to comment. In a statement, White House spokesman Kush Desai said: “The administration’s only goal with these talks is to advance President Trump’s America First economic agenda towards fair and reciprocal trade relations. Any discussion about ‘target’ tariff rates is baseless speculation.”
The biggest issue confronting the Trump administration is that tariffs between the world’s two largest economies have risen so high, with US duties on many Chinese imports at 145%. Even a dramatic de-escalation is unlikely to ease much pain for American consumers amid warnings of higher prices and empty shelves this summer.
In comments Thursday, US officials from President Donald Trump on down made clear their desire to reduce the tariffs he hiked rapidly in response to Chinese retaliation to his April 2 announcement of new duties.
“You can’t get any higher — it’s at 145%, so we know it’s coming down,” Trump told reporters on Thursday as he announced the outlines of a US-UK trade deal. “I think we are going to have a good weekend with China.”
“De-escalating, bringing those rates down to where they could, where they should, be, I think it’s Scott Bessent’s goal. I think it’s the Chinese delegation’s goal as well,” Secretary of Commerce Howard Lutnick told CNBC. “And that’s what the president hopes is a good outcome, is a de-escalating world where we go back to each other and then we work on a big deal together.”
US stocks rose Thursday as investors welcomed Trump’s comments on the trade talks with China. Hopes the US will iron out trade deals has helped lift the S&P 500 Index broadly back to where it was prior to Trump’s announcement of reciprocal tariffs in early April that triggered the worst day for Wall Street since 2020. Asian stocks gained on Friday.
US Initiative
Chinese officials, meantime, have been guarded about their aims for the talks. Beijing on Thursday reiterated its call for the Trump administration to cancel unilateral tariffs on China, with Commerce Ministry spokesman He Yadong saying that the US “needs to show sincerity to talk and be prepared to rectify its wrongdoing.”
A move by the US to lower tariffs could be matched by China, said Song Hong, deputy director of the Institute of Economics at the Chinese Academy of Social Sciences, a top government think tank in Beijing.
“The US will have to take the initiative to reduce its tariffs on China because the trade war was launched from its side,” Song said. “If it slashes the existing levies to, say 60% or lower, I believe China will follow suit and lower its tariffs on US goods, rather quickly.”
However, it’s unlikely all tariffs will be removed, he said, with the US having for years now labeled China a strategic rival. “China no longer holds the delusion that the US policy on China will change,” he said.
Coexist or Decouple
While expectations are limited for this weekend’s talks, the very fact that they’re happening at all offers some cause for optimism.
“The US and China have to find a way to coexist or they will decouple and there will be huge consequences for the global economy and the world order,” said Scott Kennedy, an expert on the Chinese economy and US-China economic relations at the Center for Strategic and International Studies in Washington. “So one can’t overestimate the importance of these negotiations.”
On the other hand, he added, the talks are just the start of a long process, making this weekend “a constructive small step in a 10,000 mile journey.”
The de-escalation the Trump administration appears to be targeting largely amounts to a return to the tariffs that the president unveiled April 2 on what he called “Liberation Day.” Those duties provoked turmoil in global financial markets and a rapid tit-for-tat escalation from Beijing.
The 34% “reciprocal” tariffs on goods from China announced April 2 came on top of 20% duties related to fentanyl that Trump imposed in the first few weeks of his second term. They also added to 25% tariffs on other Chinese products going back to his first term, meaning that even if the US goes back to where it was at the beginning of April, some Chinese goods coming into the US will face tariffs of 79% or more.
“Even if they cut them in half they’re still way beyond levels we’ve ever seen before,” said Wendy Cutler, a former senior US trade negotiator now at the Asia Society Policy Institute. “They’re going to seriously curtail trade.”
According to Bloomberg Economics calculations, the existing tariffs on China and the rest of the world have lifted the US’s average tariff rate by more than 20 percentage points to 23%. Cutting the rate on China back to the 34% he rolled out April 2 would reduce the increase in the average rate to 12.6 percentage points.
But that would still be the largest hike the US has imposed since 1930 and leave a very high tariff wall around the world’s largest economy. The economic pain either way is likely to remain significant.
Economic Blow
At their current rates, the tariffs would lower US GDP by 2.9% and boost core prices by 1.7% over two to three years, according to Bloomberg Economics. At half their current rates, the drag would be half as much but still significant for an economy that contracted in the first quarter of this year ahead of the imposition of the duties.
Other economists argue that the rush to build up inventories ahead of the new tariffs has given US businesses a cushion — at least for now. The trade deficit hit a record in March as companies rushed to import products, suggesting companies have stocked up a buffer of inventories.
For China, the tariffs likely contributed to the worst factory contraction since December 2023. While April’s exports were stronger than expected, shipments to the US dropped sharply, with the impact of the trade war likely to become more pronounced starting this month.
Even if there is an agreement to reduce tariffs in the coming days, that doesn’t mean that the US and China are racing toward a broader deal to resolve their trade differences. In comments to a closed-door gathering hosted by JPMorgan last month, Bessent said he thought it would take 2-3 years to reach an agreement with China.
At a congressional hearing this week, Bessent was asked whether the talks with China were advanced. “On Saturday, we will begin, which I believe is the opposite of advanced,” he responded.
Long Process
“Through these talks, we’re going to find out whether the US is serious and prepared for meaningful negotiation,” said Wu Xinbo, director at Fudan University’s Center for American Studies in Shanghai. But “the negotiations, once started, are going to be a long and complicated process. So this is very much the beginning. Let’s not be too optimistic.”
Each side has plenty of reasons to be suspicious of the other. China would like to see US tariffs come down to pre-April levels and it’s unclear Trump is prepared to do that. The preliminary deal unveiled with the UK on Thursday left a new 10% surcharge on UK imports in place, despite concessions made by the British government.
On the US side, it’s unclear if China is prepared to embark on the sort of structural reforms such as bringing an end to industrial subsidies and other practices that Washington has long argued are needed to rebalance trade.
Both sides also appear to be approaching the weekend negotiations with the view that they hold the upper hand, which raises the risk of miscalculations. US officials seem convinced the Chinese economy is suffering more than the US’s, while Chinese officials see the polls showing Trump’s tumbling approval rating and how the swoon in markets in April caused him to lift some of his new duties.
Indeed, both are keenly aware of their domestic audiences. President Xi Jinping has seen a surge of patriotic sentiment within China urging him to resist US pressure, while Trump has a track record of striking back when he thinks he has been embarrassed.
“The roadblock to an agreement is the pride of both leaders,” said Andrew Collier, a long time China watcher at Harvard University’s Kennedy School of Government.
“In Trump’s case, there are his promises to his political base that he will ‘solve’ the trade deficit through tariffs,” Collier added. “Xi is still working to control his military, as numerous anti-corruption campaigns show, and he also must demonstrate to the Politburo hardliners that he is not going to show weakness to the US.”
US-China Trade Talks, US CPI and Retail Sales: Global Week Ahead
This weekend, all eyes will be on the US-China trade talks in Switzerland. ‘Agreement to agree’ – combined with a temporary lowering of tariffs – would be a positive outcome. Next week, the US CPI report will offer early clues on how tariffs may impact consumer prices – we expect a modest rise in the monthly headline and core gauges. We’ll also cover US retail sales. UK labor market data is likely to show wage-growth decelerating, but still too fast for the Bank of England’s liking. China’s April CPI print will show ongoing deflation. In Latin America, our call is for a half-point rate cut by the Bank of Mexico and headline inflation in Argentina to slip below 50% for the first time in almost four years.
US-China Trade Talks – Here’s What We Expect
The US and China kick off tariff talks in Switzerland on Saturday, with Treasury Secretary Scott Bessent and USTR Jamieson Greer in the chair for the US, and Vice Premier He Lifeng representing China. At stake: the future of the trade relationship, and the outlook for growth and inflation in the world’s top two economies.
An ‘agreement to agree’ would be the easiest win. A temporary lowering of tariffs while talks toward a deal continue is also possible. Investors have already priced in some de-escalation. For US-China trade it will take a very significant ratcheting down from current tariff levels to keep goods flowing.
In the US, April CPI to Offer More Clues to Tariff Pass-Through
The US April CPI report, due May 13, will provide fresh clues about how tariffs are impacting consumer prices. We expect core CPI inflation ticked up to 0.3% from 0.1% in March. CPI categories most exposed to China – such as apparel, household furnishing and supplies, and recreation commodities – saw earlier and larger tariff increases than other goods. But it will likely take time for prices to adjust, and firms may lack pricing power to pass them on.
The March report signaled little-to-no pass-through in these categories, despite tariffs that began in February. Services categories were also soft, but are likely to pick up somewhat in April. Overall, we expect headline CPI rose 0.3% (vs. – 0.1% in March). On a year-over-year basis, we see headline and core CPI inflation unchanged at 2.4% and 2.8%, respectively.
Conclusion
While any agreement this weekend would be small, it could mark the start of a long path back to trade stability. But with both sides under domestic pressure and facing economic headwinds, real progress will take time. For now, markets are watching—and so should you.
