My latest #ThoughtoftheDayonChina : I am sticking my neck out by predicting US-China talks over tariffs are likely to take place soon, following a genuine call between Trump and Xi in coming weeks

Reprinted from today's South China Morning Post (05052025)

To call or not to call – that is the question poised to vex the US-China relationship in the coming weeks, as Beijing and Washington up the ante in this power game to see who will blink first. On April 2, US President Donald Trump ignited a global trade conflict, specifically targeting China due to its substantial annual trade surplus with the US.

Since then, the world’s two largest economies have engaged in a tit-for-tat over trade tariffs. The US has imposed a 145 per cent tariff hike on most Chinese goods. China retaliated with a 125 per cent tariff on American products.

The preposterous tariff levels have ground bilateral trade to a halt. How and when this tariff war will end is a matter of intense global debate and speculation. However, one thing is clear: if Trump anticipated China would capitulate first, he misjudged Beijing’s political strategy and its capacity to withstand economic hardship.

In recent weeks, an absurd episode of political theatre unfolded. Through various media interviews and impromptu remarks, Trump, with a poker face, claimed that President Xi Jinping had called him to discuss tariff and trade negotiations, implying Beijing’s concession.

“[Xi's] called. And I don’t think that’s a sign of weakness on his behalf,” Trump stated in a Time magazine interview late last month, a claim he later reiterated. He also asserted that his administration was negotiating with the Chinese to reach an agreement.

Yet, Beijing has consistently and categorically denied all of Trump’s assertions, including claims that Xi called him or that the two sides were engaged in tariff discussions.

Given Trump’s history of exaggerations and lies to influence negotiations, Beijing’s version – that no direct talks over tariffs occurred between Xi and Trump – seems more credible.

However, it is difficult to imagine there has been zero contact between the two nations. In fact, on April 17, eight days after Trump increased tariffs to at least 145 per cent on Chinese imports, Xinhua reported that the Chinese Ministry of Commerce had maintained working-level communication with its US counterpart, citing its spokesperson.

Since then, however, Beijing has taken a firmer stance, insisting no direct talks on trade and tariffs are under way, even as Trump amplified claims of ongoing discussions.

Beijing remains reluctant to enter serious negotiations with Washington until it gains clarity on Trump’s intentions. Compared to the initial phase of the trade war launched in 2018, Beijing is better prepared this time. Chinese officials began discussing various scenarios last year, well before Trump’s inauguration.

It appears that Beijing has decided to turn the tables on Trump by adopting his strategy of maximum pressure, aiming to force the other side to yield first and secure a favourable deal. Chinese officials believe Beijing is in a stronger position to withstand short-term pain than Washington, largely due to China’s political system, which enables leaders to marshal resources to mitigate tariff impacts without concern for public backlash, unlike Trump’s administration.

Furthermore, China’s tight media controls help shape public narratives. China’s Ministry of Foreign Affairs released a viral short video titled “Never Kneel Down,” likening submission to Trump’s demands to the act of drinking poison. Chinese state-controlled media outlets have published commentaries revisiting Mao Zedong’s 1938 essay, “On Protracted War,” urging confidence in an eventual victory against Japan in 1945.

Though few expect the tariff war to persist as long as the rhetoric suggests, China’s stance is hinged on Trump blinking first.

What lies ahead? On Thursday, Yuyuan Tantian – a social media account linked to state broadcaster CCTV – posted that the US had reached out to China through “multiple channels” to initiate trade talks, citing anonymous sources. The post suggested there is no need for Beijing to engage with Washington unless substantive actions are taken.

However, if American officials seek to initiate contact, Beijing stands to benefit by observing or even forcing the US to reveal its true intentions, gaining leverage in negotiations.

On Friday, China’s Ministry of Commerce released a statement that said Beijing is assessing the US’ stated willingness to hold talks over tariffs, suggesting that Chinese leaders could potentially build an off-ramp for both sides to begin talks.

Some analysts view those two recent messages as positive signs of Beijing’s willingness to engage with Washington at its repeated requests.

The new developments should add credence to the best-case scenario that mounting costs of the conflict are more likely to force Xi and Trump to engage in a genuine phone conversation in the coming weeks, with their respective spin doctors crafting language to ensure both leaders emerge as victors.

According to the latest data, the US economy contracted for the first time in three years in the first quarter of this year while China’s manufacturing purchasing managers’ index hit a 16-month low in April.

Moreover, despite Beijing’s tough rhetoric, it has still followed the strategy formulated after Trump’s first trade war against China in 2018: fighting but not breaking off. That five-word strategy means that while China and the US fight on geopolitical and technological issues, Beijing probably still wants to work with Washington on other issues involving narcotics, terrorism and military communication.

A phone call could be followed by an in-person meeting within six months, possibly on the fringes of an international summit or an arranged bilateral visit. This could lead to both sides negotiating a deal to reduce the excessive tariff levels to tolerable rates by year-end. The alternative – a protracted tariff war – would be detrimental for all involved.

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