In US-China geopolitical blinking contest, Beijing seems to be winning

The US made multiple overtures seeking trade negotiations with China. This is a defining moment in the geopolitics of the post-Cold War era, playing out in front of the world community.

The announcement of the US-China trade talks in Geneva on May 10 comes as no surprise. When US Treasury Secretary Scott Bessent meets with Chinese Vice Premier He Lifeng for trade talks, it will be the first high-level interaction between the two countries since Chinese Vice-President Han Zheng attended Trump's inauguration in January. “The future of the world economy is riding on their success,” CNN noted. 

The consensus opinion is that the talks spread over the weekend are unlikely to result in a trade deal. But in the current situation, with US-China trade dropping off dramatically, any thaw would be a breather for businesses and consumers in the two countries. 

Bessent told Fox News: “My sense is that this will be about de-escalation, not about the big trade deal… but we’ve got to de-escalate before we can move forward.” He predicted that it would take 2-3 years for US-China trade to normalise. Bessent said he’d also look forward to rebalancing the international economic system to better serve the interests of the US.

Both Bessent and US President Donald Trump have acknowledged that the tariffs are too high. Trump said he’d lower tariffs on China “at some point.” Chinese State media reported that Beijing had decided to engage with the US after fully considering global expectations, the country's interests, and appeals from US businesses. 

Chinese foreign ministry spokesperson Lin Jian made it a point to highlight during the daily briefing on May 7 that it was the US side who recently expressed its willingness to engage in negotiations with China, and that the meeting has been arranged at the request of the US side. Lin also emphasised that China’s firm opposition to the US' arbitrary imposition of tariffs remains unchanged.

Indeed, tariffs have already damaged the two economies. The US economy went into reverse in the first quarter, for the first time in three years. Tariffs more than double the cost of imported goods from each other — that is, consumers are just weeks away from higher prices and even shortages. China’s factory activity also contracted in April and stimulus measures became necessary, as the central bank and financial regulators announced sweeping plans to cut key interest rates to shore up growth.

The US is expected to be the hardest hit as many other countries also are imposing tariffs on it. Asian currencies strengthened against the dollar amid depressed confidence in the dollar. Global non-US investors are reducing allocations to the dollar and dollar-denominated assets. 

China is pivoting on the belief that it is holding trump cards. The Global Times recently made a case study of Apple’s plans to shift most of its iPhone assembly to India for the US market. The underlying consideration is that the US tariffs on Chinese imports will cost the company an extra $900 million in the June quarter alone. The company has already moved the assembly of iPads, Macs, Apple Watches, and AirPods to Vietnam to reduce its dependence on China.

The Global Times argued that no matter the production shifts, Apple cannot escape a surge in prices due to Washington’s tariffs in the US market because about 90% of Apple products are now assembled in China, not to mention the thousands of apps developed for Apple devices, and US cannot take on iPhone production in terms of technology or workforce. Wedbush analysts estimate that the cost of a single iPhone could triple, reaching around $3,500 if all iPhone assembly is done domestically in the US.

Although Apple has shifted some assembly lines to countries such as India and Vietnam, many components are still made in China. “That's because China continues to lead the world in key manufacturing technologies, and there aren’t easy alternatives for many parts. In other words, Apple's supply chain is tightly linked to China,” the paper wrote. 

The bottom line is that for weeks, the US and China have been locked in a geopolitical blinking contest, waiting for the other side to reach out. And China won. That too, after the US made multiple overtures seeking trade negotiations. It became a defining moment in the geopolitics of the post-Cold War era, playing out in front of the world community. 

China’s commerce ministry spokesman said that China's position on the issue has been consistent: If it's a fight, we'll fight. If it's talks, the door is open. In any possible dialogue or talks, if the United States side does not rectify its erroneous unilateral tariff measures, it will show that the US side is totally insincere and will further undermine mutual trust between the two sides. 

The earlier expectation of a broader ‘authoritarian realignment’ between Trump and Xi Jinping has dissipated in recent weeks since March, as it dawned on Beijing that Trump does not appear to be interested in resetting the relationship with China more broadly. Plainly put, China decided that it would fight back. This is where China is parting ways with Russia, although the Kremlin too had been preparing the nation psychologically for many years that the US is trying to contain Russia’s rise. 

He Lifeng, Politburo member and vice-premier who wears big shoes as the tsar for the country’s economic and financial affairs, can be expected to play hard ball. He is a powerful figure and there is no precedent for his career in Chinese politics. All the same, China is projecting itself as the responsible nation in a bruising superpower competition that has rocked the global financial system and triggered fears of a recession. 

Optics aside, while China may still have the upper hand, its economy too is slowing, and there is impetus for both sides to strike a deal quickly. Bessent said in the Fox interview that the current tariffs aren't sustainable and are “the equivalent of an embargo. We don't want to decouple. What we want is fair trade.” 

There is a meeting ground here. One possibility could be that Trump might remove the steep reciprocal tariffs while keeping 20% duties on Chinese goods. 

(M K Bhadrakumar is a former diplomat.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.