MNI: China Sees 10% Tariffs As Realistic, May Offer UST Deal

China could aim in upcoming talks with the U.S. for a reduction in 2025's additional tariffs on its exports to no more than 10%, and it will be willing to negotiate areas including purchases of American goods and U.S. Treasury bonds as well as the further restructuring of its economy to make it more open and more focused on consumption, policy advisors told MNI.

While Beijing insists that it wants the removal of all tariffs imposed by President Donald Trump, it will be challenging to agree a permanent removal of the 24% levy, said a former official familiar with trade policy, though he added that China’s bottom line would be for tariffs to fall to Washington’s baseline of 10%. He noted that Chinese exporters would remain competitive with U.S. import duties of up to 20%, given support from state subsidies and potential for cutting costs. A 20% tariff linked to production of fentanyl could be removed if China tightens controls on exports of chemical precursors, he said. (See MNI: China Urged to Aid U.S.-Trade-Exposed Regions)

Results must be achieved within the 90-day negotiation window during which tariffs of 24% have been suspended, otherwise the U.S. might take fresh action against China, said the official, noting that Washington may feel under less pressure to strike a deal if bond markets avoid any repeat of the stress seen in April, and if U.S. inflation shows no sign of spiking in June or July due to the loss of cheap Chinese goods.

TREASURIES

China could also commit to purchases of U.S. Treasury bonds, the official said, adding that the U.S. debt market was stabilising following April’s volatility. The weekend’s agreement will see China suspend updates to its Unreliable Entities List and tighter controls on exports of rare earths imposed since April 2, the official said.

Lu Xiang from the Chinese Academy of Social Sciences, an expert on China-U.S. relations, told MNI that he saw the U.S. reducing tariffs to 30% even in a pessimistic scenario, with the 20% fentanyl levy requiring additional negotiations. The best outcome would be a reduction to 10%, a level which the U.S. is determined to maintain in order to collect revenue, he said, adding that he was confident that the 90-day suspension of the 24% tariff can be made permanent, in return for measures including the purchase of U.S. goods, which could include not only agricultural products but also high-technology items.

MACRO COORDINATION

A deal could also see China and the U.S. agree some level of policy coordination, so that economic measures in one country do not exacerbate problems such as inflation in the other, while avoiding potentially-destabilising “vicious currency competition,” Lu said.

Negotiations could even cover the possible extension of structural reforms to make consumption and services the driver of China’s economy, and the further opening up of its markets, said Sun Lijian, director of the Financial Research Center at Fudan University in Shanghai.

The leadership of Treasury Secretary Scott Bessent on the U.S. side in the talks would make it more feasible to discuss mutually-beneficial macroeconomic and monetary policy coordination, noted Lu, calling him a “money man” rather than a “tariff man.”

While Beijing would argue that any formal deal to push up the value of the yuan is unnecessary, it could allow the currency to appreciate over the long run in line with fundamentals, given that its value is low in purchasing power parity terms, said Lu. (See MNI: China Won't Make Japan's Mistake With FX Deal- Advisors)

“That would also help to improve China-U.S. trade balance,” he said.

Sun also did not rule out the possibility that China would agree to increase its holdings of U.S Treasuries, but only on the condition that Trump scales back his tariffs, which he said have inflicted severe damage on the global business environment and on cross-border trade and investment. (See MNI INTERVIEW: China Has Room For Further Monetary Easing)