What to expect from the US-China trade talks?

In a joint statement released on 12 May 2025, both sides agreed to a substantial reduction of inflated tariffs imposed since 2 April, leading to a 115% decrease on each side. This effectively leaves only a 10% base rate of the so-called reciprocal tariffs in place. China also agreed to remove its non-tariff countermeasures.

The deal establishes a mechanism for bilateral talks on trade and economic matters for 90 days. However, long-term peace is not guaranteed. Here’s what could happen next.

Tariff relief

Given the level tariffs have reached, the new, still near-crisis-level duties are being welcomed as significantly lower.

Although the tariff reductions mark a breakthrough in what was once an impenetrable trade barrier between the countries, it is still unclear how much trade will be restored.

Uncertainty is never good for business, so will US and Chinese trade partners feel comfortable resuming ties amid circling volatility?

In any event, the negotiated cuts are temporary and subject to ongoing talks. Moreover, tariffs in place before 2 April, including the so-called 20% fentanyl tariff on all Chinese imports, remain.

The reductions also excluded sector-specific tariffs, such as those on steel and aluminium and forthcoming taxes on pharmaceutical goods.

Diplomatic shift

The most positive part of the deal goes beyond tariffs. The apparent change of tone affirms key principles of “mutual respect and benefits” and a commitment to “continued communication and cooperation.”

The consultative mechanism restores a stable communication channel for regular and ad hoc discussions where both sides can air concerns, disagreements and mutually-acceptable solutions. Unnecessary or unexpected trade frictions may, therefore, be minimized.

In press conferences held by lead US and Chinese negotiators, both sides expressed a shared vision of deepening economic cooperation while strategically managing areas of disagreement.

It should be remembered, however, that the United States and China have a history of establishing consultative mechanisms which have mostly failed to produce significant progress on the most complicated issues bedevilling the relationship.

Historical precedent

In 2006, the Strategic Economic Dialogue was initiated under then-Chinese president Hu Jintao and former US president George W. Bush, only to be renamed in 2009 as the Strategic and Economic Dialogue, indicating a broader scope.

Irrespective of the name, the mechanism did not produce any advancements and was disbanded in 2017.

Any form of dialogue is better than the contrary, so the new mechanism should be saluted for that reason alone. Given the increasingly complex divide between the two countries, the question is whether this forum would succeed more than its predecessors.

Significant challenges abound. Practically, the United States is desperate to rebalance its massive trade deficit with China, whereas China believes that two-way trade is largely balanced if services trade is considered.

The outcome could be a “managed trade” agreement in which China agrees to increase its purchases of US goods.

Structural challenges

To prevent the implementation issues that arose from China’s unmet commitments under the Phase One deal during Trump’s first term, any new pledges should be grounded in realistic targets that consider China’s economic conditions and capacity.

Another potential complication is that China may want something in return, potentially further tariff cuts.

Broader structural issues, such as China’s industrial policy, subsidies and non-market practices, are unlikely to be resolved in any near-term agreement.

If both sides are genuinely committed to addressing these challenges, prolonged negotiations, sustained political will, cooperative engagement, and significant compromise will be required.

While the prospects for a breakthrough remain uncertain and distant, the more immediate concern is whether a breakdown in talks could lead to a renewed escalation in tariffs.

Strategic pressure

Discussions will also be further complicated by the United States’ wider campaign of reciprocal tariffs, paused on 9 April and now undergoing a 90-day negotiation period.

Information from US President Donald Trump’s administration on the number of agreements under consideration has been inconsistent, but at least some deals will be made.

The first such agreement in principle, with the United Kingdom, has already been reached. It confirms suspicions that the United States intends to use these negotiations to push third countries into applying pressure on China.

US tariff cuts were made contingent upon the UK meeting strict security requirements for its steel and pharmaceutical industries, a move clearly understood to be targeted at China.

Predictably, China has reacted, stating that “cooperation between states should not be conducted against or to the detriment of the interests of third parties.”

Enduring tensions

Should subsequent negotiations follow suit, this could adversely impact US-China discussions.

At a deeper level, US-China economic tensions are driven by their competing ambitions for national security and global leadership in strategic industries, advanced technologies and critical supply chains. As a result, selective decoupling in certain sectors remains a distinct possibility.

While bilateral talks are unlikely to resolve the deeper structural issues in an increasingly bipolar or multipolar world, they remain essential.

Dialogue allows the world’s two largest powers to manage their differences and competing interests through consultation rather than confrontation.

Still, as “America First” collides with a rising China, global economic stability remains precarious.