The United States and China extended their trade truce by 90 days on Tuesday (August 12), a trade war ceasefire that will buy time for each to restructure their supply chains in case negotiations collapse in November.
After US President Donald Trump signed an executive order on Monday extending the deadline for higher tariffs on China until November 10, the Chinese Ministry of Commerce (MOFCOM) issued a reciprocal statement saying it would suspend additional tariffs on US goods for 90 more days.
Both sides said they would maintain 10% tariffs on each other’s goods. However, the US will continue a 20% tariff on Chinese goods related to alleged fentanyl trafficking and 7 to 25% tariffs imposed in the 2019 trade war. This means that Chinese manufacturers need to pay tariffs as high as 55% on certain of their exports to the US.
The MOFCOM said on Tuesday that China will extend for 90 days the suspension of measures under the Unreliable Entity List Working Mechanism, issued on April 4, and also suspend the measures issued on April 9.
On April 4 and 9, the MOFCOM added 17 US entities to the Unreliable Entity List, prohibiting them from engaging in import and export activities related to China and from making new investments in the country. On January 2, it added 28 US companies to its export control list, prohibiting the export of dual-use items, including key critical minerals.
The truce’s extension was not unexpected. US Treasury Secretary Scott Bessent said on July 30 that the two sides would probably extend it for 90 days, pending Trump’s final approval.
“China is like a multi-level chess game, because traditionally, our biggest economic rivals have been our allies,” Bessent told Fox News in an interview on Tuesday. “China is our biggest economic rival and our biggest military rival. So we’re solving for several variables here. What we are trying to do is to get to a more balanced trade.”
He said that most outside observers believe China has the most imbalanced economy in modern times, overgeared on manufacturing rather than domestic consumption. He added that US and Chinese officials will discuss that imbalance in the coming months.
He said that Chinese President Xi Jinping has invited Trump to visit China, and Trump has expressed a desire to meet with Xi. The meeting has not been confirmed.
Bessnet said that although China has resumed shipping rare-earth magnets to the US, the US government is actively seeking to source rare earths elsewhere by investing in the Mountain Pass rare earth mine and working with six to seven smaller companies.
Beijing’s strategy
Since Trump imposed reciprocal tariffs on all countries on April 2, tensions between the US and China have increased. A week later, the US imposed 145% tariffs on Chinese goods, while China retaliated with 125% tariffs on US goods.
After officials from the two sides met in Geneva on May 12, in London on June 6-9 and in Stockholm on July 28-29, they agreed to de-escalate the situation, which global markets reacted to favorably.
“During the tariff war in the past three months, the biggest achievement is that both China and the US have clarified their respective demands and bottom lines,” Song Guoyou, deputy director at the Center for American Studies, Fudan University, told China’s state-run Global Times in an interview.
“This has facilitated communication between the two sides towards further controlling the conflict,” he said.
“After three rounds of negotiations, the Sino-US trade tensions have temporarily eased,” said Liao Shuping, a senior researcher at the Bank of China Research Institute. “Although China’s exports to the US showed signs of recovery, they still face downward pressure.”
Liao said that the fact that the US has recently reached agreements with some trading partners to increase tariffs and restrict their re-exports would create new pressure on Chinese exports to non-US markets.
On July 2, the US and Vietnam reached a trade agreement under which the US will charge a 20% tariff on imports from Vietnam. However, Vietnam is required to pay a 40% tariff on goods deemed as “transshipped” to the US. Reports from Vietnam indicate US criteria for what would be considered transshipment are unclear in their trade deal.
In recent years, Vietnam has been the top choice for Chinese manufacturers to relocate their factories. These manufacturers send their goods from China to Vietnam for “origin washing,” simply by changing product labels to “Made in Vietnam” before shipping them to the US. Some may set up assembly factories in Vietnam, but still, a majority of their components come from China.
Liu Yue, deputy director at China’s Academy of Macroeconomic Research (AMR), and Yuan Qian, a researcher at the AMR, co-wrote an article on August 6 stating that China encourages and supports Chinese manufacturers to move overseas.
They said the relocation should be of high quality, meaning that manufacturers should localize their workforce, understand local markets, and invest in research and development. They said China’s professional groups and industry associations should also support companies going overseas.
China’s state media widely circulated Liu’s article.
Zheng Yijun, the general manager of a Chongqing-based logistics firm, told state-owned Phoenix TV that when the US imposed 145% tariffs on imports from China, many Chinese manufacturers accelerated their plans to move to Vietnam, creating new logistics demand for his firm.
“Although the United States’ reciprocal tariff is now 10% on Chinese goods, exporters still need to pay an extra 30-45% tariff,” he said, adding that logistics demand to Vietnam from Chinese firms has remained strong.
A Guangdong-based columnist says that many Chinese manufacturers are reducing headcounts and wages as they either relocate outside of China or receive fewer orders than in the past.
He said many workers’ salaries have been cut in half to 3,000 yuan (US$418) a month, as many Chinese manufacturers have relocated their factories overseas. The writer says living on that lower salary in the city is very difficult.
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