Chinese President Xi Jinping (習近平) is heading to the negotiating table with US President Donald Trump with a boost in bargaining power, after the US leader lost his ability to quickly raise tariffs for nearly any reason.
Weeks before Trump lands in Beijing on March 31, the first trip by a US president since his previous visit in 2017, the US Supreme Court invalidated his broad emergency tariffs — a key point of leverage over China. That has eliminated Trump’s second-term levies on China and left Beijing facing the same 15 percent global fee applied to US allies, a rate that comes with a 150-day expiry date.
The removal of tariff threats, which last year escalated up to 145 percent, would make it harder for Trump to press Xi for larger purchases of soybeans, Boeing Co aircraft and energy. It also leaves him without a key weapon to strike back if Chinese negotiators make fresh demands in return for allowing a steady flow of rare earth metals that are vital to US manufacturing.
Illustration: Mountain People
“Ultimately, this Supreme Court ruling puts China in a much stronger bargaining position,” said Wu Xinbo (吳心伯), director at Fudan University’s Center for American Studies, citing the example of China’s commitment to buy 25 million tonnes of soybeans, which was predicated on previous tariff negotiations. “If those tariffs are now deemed illegal, the ‘soybean card’ is back in China’s hand.”
Xi’s team would likely push harder for access to advanced semiconductors, the removal of trade restrictions on Chinese companies and reduced US support for Taiwan, where Beijing’s focus is on arms sales and stronger language opposing Taiwanese sovereignty, added Wu, who previously advised the Chinese Ministry of Foreign Affairs.
The Chinese Communist Party considers democratic Taiwan its own territory despite never having ruled it.
While Trump’s setback is a win for Xi, Chinese officials, like others around the world, have been cautious in their reaction.
In its first official comments on the ruling, the Chinese Ministry of Commerce on Monday said that it is conducting a “comprehensive assessment” of the implications.
“We have also noted the US side is preparing alternative measures, such as trade investigations, in an attempt to maintain tariffs on trading partners,” a spokesperson said in the statement. “China will closely monitor these developments and firmly safeguard its own interests.”
US Trade Representative Jamieson Greer on Sunday told Fox News that the US maintains an average tariff of 40 percent on China, even without using the emergency law struck down by the court. Morgan Stanley estimates that the average US tariff on China stands at 24 percent.
Either way, the impact of US tariffs for Beijing was already blunted last year by exporters diversifying into other markets. China’s record US$1.2 trillion trade surplus last year surprised the world and defied Trump’s levies. By December, shipments from China to the US accounted for about 10 percent of its total exports, according to official Chinese data — half the share in 2018, when Trump launched his first trade war.
Retaliation could still be on the cards. Beijing would assess corresponding measures if the US continues to impose new duties using other legal tools, former Chinese Ministry of Commerce consultant Cui Fan (崔凡) said.
The possibility cannot be ruled out that adjustments would be made if the US actually lowers tariffs, Cui was cited as saying by Yuyuantantian, a social-media account linked to China’s state broadcaster.
China’s markets were closed for Lunar New Year holidays and reopened yesterday, and investors might react positively to the tariff news. Chinese stocks in Hong Kong rallied on Monday, with an index tracking major mainland companies listed in the territory rising as much as 2.8 percent.
“Consumption remained robust during the holiday, which will boost market sentiment via the consumer sector,” said Shen Meng (沈萌), director of investment bank Chanson & Co in Beijing. “Some export-oriented enterprises will also strike an upbeat note, buoyed by the short-term tariff ruling and Trump’s visit to China.”
Trump can rely on Sections 301, 232 and 122 of the Trade Act to push forward his tariff regime, said Wendy Cutler, senior vice president at the Asia Society Policy Institute and a former acting deputy US trade representative.
The 15 percent global rate Trump has set falls under Section 122. The other two powers permit the president to unilaterally impose tariffs, but only following investigations that typically last months.
China is still facing a Section 301 investigation on its compliance with the first phase of a trade agreement from Trump’s first term, when Beijing failed to meet purchase agreements.
That investigation could be a “major feature of the backup plan for Beijing,” Cutler said.
Trump could also expand the use of export controls if China restricts rare earths. Beijing’s agreement to restore flows of the vital materials came after the US cut off sales of chip design software, jet engines and spare airplane parts.
China is likely to honor the current bilateral trade consensus rather than force the US to make immediate corrections, said Shen Dingli (沈丁立), an international relations academic in Shanghai.
“Officials are likely to keep a low profile to ensure Donald Trump’s visit to China in April goes smoothly,” Shen said.
While the Chinese side might have more room to bargain, Trump has threatened new tariffs to gain leverage ahead of key meetings, and did so before his previous summit with Xi in October. Although it did not manifest, his initial threat of an additional 100 percent tariff on China roiled equity markets and commodities.
The US Supreme Court ruling would not result in a fundamental reversal of US-China economic and trade relations, said Zhou Mi (周密), a senior researcher at a think tank affiliated with the Chinese Ministry of Commerce.
“Of course, such a ruling does not prevent the Trump administration from using other forms of executive authority to achieve its trade and other policy goals,” Zhou said.
Still, “this serves as a reminder to all countries that executive power cannot, under any circumstances, be exercised beyond its originally authorized scope,” he said.
Even as the White House looks to reconstitute the levies in another form, the court’s removal of the 10 percent fentanyl tariff along with the “reciprocal” duties gets rid of a key sticking point between the nations.
They began peeling back national-security restrictions in talks last year, reaching a deal over TikTok’s operations in the US as the Trump administration approved the sale of Nvidia Corp’s H200 chips, a more advanced version than previously allowed.
In the run-up to the Trump-Xi talks, Ford Motor Co’s top executive spoke to senior Trump administration officials about a potential framework in which Chinese automakers could build cars in the US, while offering some protection for domestic companies, Bloomberg reported earlier this month.
While such a move is likely to face congressional opposition as the midterm elections approach, any agreement to allow more Chinese investment in the US would mark a significant breakthrough on a sensitive topic.
Chinese exporters might choose to expedite shipments to the US while tariffs are low, Pinpoint Asset Management chief economist, Zhang Zhiwei (張智威) said.
“The US administration will likely seek alternative ways to keep tariffs on imports from China high,” he added. “But searching and implementing such alternative tariffs may take time.”
Zheng Tao, a Chinese export trader of auto parts with more than 70 percent revenue from US companies, said that while the ruling is “good news” and would spur more orders, he is uncertain if there is more bargaining power on prices after he lowered them last year to retain US customers.
Others viewed the Supreme Court’s decision as the latest stir in a year of policy ambiguity and tumult.
Lin Qian, who runs factories making toys mainly for US customers in the southern China boomtown of Shenzhen and Vietnam, was indifferent to the Supreme Court ruling.
The constant change in policies is confusing to businessmen, he said.
While his China plants are still processing the bulk of orders, he had boosted production in his new Vietnamese factory in September last year as Sino-US tensions linger.
“We have to have Plan A, B, C for such dynamic conditions,” he said.
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