President Trump declared his China deal ‘done’ after trade talks in London on June 10. And while the sarcastic, old Wall Street cliché says ‘this time is different’—this time, it just might be. The context has shifted, the pressure is real, and, for once, Washington held firm. These new China talks take place under a different set of circumstances than those that existed in the previous Trump administration’s trade talks, and earlier attempts by Presidents George W. Bush and Barack Obama to get China to see the error of its ways.
After London, tariffs remain at 55%, global export controls on Huawei’s Ascend AI chips are untouched, and rare earth minerals will flow for now.
China, in contrast, got a limited reprieve, with little beyond visa reinstatements for college kids and maybe a quiet handshake promising never to sign Senators Lindsey Graham (R-SC) and Richard Blumenthal’s (D-CT) China sanctions bill. If that was part of a backroom deal, I don’t expect anyone in the Trump administration to say that unless they feel the need to sling mud at one of those two senators.
As for the negotiators in London, Treasury Secretary Scott Bessent is confident this time really is different. The Geneva and, later, London trade talks with China, of which Bessent was ringleader, will be fruitful, he said.
“I’m confident these negotiations will bring balance between our two economies,” he told the Senate Finance Committee on June 12.
“China has a singular opportunity to stabilize its economy towards greater consumption, and if China will course correct and hold up to its agreement in Geneva last month, then a big, beautiful rebalancing of the world’s two largest economies is possible,” he said in his opening remarks.
China essentially got a cease fire at high tariff rates. They get to sell rare earths to the United States, something they wanted to restrict strategically, but we are their second biggest rare earths market after Japan and maybe they don’t want to lose that.
China’s Labor Outsourcing Must Worry Beijing
The U.S. and China economies are deeply enmeshed. But since the 2018 China tariffs imposed by Trump in his first term, Chinese companies have been outsourcing manufacturing labor to Southeast Asia and investing in new factories in Mexico.
This is a labor shock China has not experienced since joining the World Trade Organization in 2001 — and it may be the first time Beijing worries it may lose the socio-economic mobility guarantees they have given the locals, keeping them in line with the Communist Party.
Maybe Chinese companies can sell more goods to the Vietnamese and Europeans to make up for losses here. But we shall see how long that part of the world tolerates being inundated with Chinese imports, especially if it puts local competitors at risk. This scenario did not exist in 2018.
Still, any talk of sanctioning China, or imposing fines on non-U.S. entities for buying Huawei Ascend chips puts the deal at risk. It would collapse what little trust remains.
As it is, a Malaysian AI project run by Skyvast Corporation seems to be giving up on considering Huawei Ascend chips because of Washington, according to the South China Morning Post.
Last week, Taiwan added Huawei chips to its list of export restrictions, Reuters reported. China is only tolerating this latest deal because it needs the U.S. market. China can sell us rare earths and send us future spies and violinists. That’s all Beijing got out of this at the moment.
Wall Street Can’t Save Them This Time
The Trump administration is forcing a strategic decoupling from China. This policy is now ingrained in Washington and in most companies. While we do not know how many manufacturing jobs China lost because of this, it is unlikely the guy making Nikes and solar panels is now employed in a Chinese biotech lab working on synthetic biology applications or building rockets.
The purpose of the Geneva talks was to scale down the retaliatory tariffs. Both sides agreed to that. The joint statement from Geneva basically said they agree to talk to one another. They said they may conduct working-level consultations on relevant economic and trade issues.
If all of that sounds familiar, it is because Washington and Beijing have been “talking” about trade imbalances since 2006.
Back then, the so-called U.S.-China Strategic Economic Dialogue (SED) stated as its goal to get China to build a home-grown consumer-driven economy. Bush’s SED was seen as the “foundation” for U.S. China trade relations with the aim to “ensure citizens of both countries benefit fairly from the relationship” and to open markets. Financial services were of particular importance. Wall Street wanted in.
Obama took over, renamed it the Strategic & Economic Dialogue, and the goals were the same. Obama managed a few big changes: in 2016, China had made enough changes to its currency that the International Monetary Fund included the renminbi in its currency basket, meaning it was now part of the Special Drawing Rights, the “currency” of the IMF.
Three years later, the Trump Treasury Department declared China was still manipulating its currency.
Over the Bush-Obama and Trump years, China continued to open its market to Wall Street, allowing them to invest in Shanghai and Shenzhen listed stocks, and then by 2018, perhaps in an attempt to get free lobbying by the likes of Goldman Sachs, allowed investment banks to set up shop in mainland China without a local partner. If Beijing hoped that would cool Trump’s engines on starting a “trade war”, as China and Wall Street call it, they failed.
Compare the past with the present: In May 2007, after the second SED, Treasury Secretary Hank Paulson, said, “We conduct our talks under the wary eyes of politicians, business leaders and workers in both of our countries. We face challenges of domestic protectionism and questions about the merits of trade and globalization.”
Paulson believed at the time that increasing trade benefited both countries. China’s presence in the global economy raised living standards in China and fueled growth around the world.
“I have no doubt that our proud, strong countries can fulfill this responsibility,” he said about the U.S. and China “defining the rules” of trade.
When Paulson was Treasury Secretary, the “China Shock” was going full speed. China imports replaced local production between 2001 and 2012. Outsourced labor never returned.
Places that lost manufacturing employment have seen a persistently deteriorated level of overall employment-to-population ratio and declines in earnings. Rates of dependency on state benefits like Medicaid rose, said MIT economist David Autor in his famous work on the China Shock.
Bessent was the anti-Paulson in the Senate Finance Committee hearing last week.
“I believe the international trade system has failed the American worker,” he told Senator Maria Cantwell (D-WA). The Democrats have decided to play the role of opposition to tariffs in these hearings. If Trump wants to protect, Democrats suddenly love free markets. If Bessent wants to try something new, the Democrats will prefer the old way.
“For too long, we have adhered to a system that has not worked. Doing the same thing again and again is insane,” Bessent told her.
This time is different—not because China changed, but because the U.S. finally did. Paulson once spoke of cooperation and warned against protectionist trade policies. Bessent speaks of broken systems and a need to protect American workers. That contrast says it all.
Bessent knows how past China talks ended. Beijing delayed, Washington relented, and the cycle repeated. Meanwhile, China transformed from Happy Meal toy maker to AI and aerospace rival. The only way to meet that challenge now is to keep a tariff wall intact—and make the U.S. worth investing in again.
Kenneth Rapoza is a former Wall Street Journal reporter based in Brazil and a longtime chronicler of the BRIC economies for Forbes. He is now an industry analyst at the Coalition for a Prosperous America.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
(Featured Image Media Credit: Official White House Photo by Shealah Craighead)
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