It’s a sign of the times that US international economic diplomacy is now written about using the vocabulary of military strategy: brinkmanship, escalation, de-escalation, retaliation, retreat. Even the ‘madman theory’ got a look-in.
So when US and Chinese officials shook hands on a temporary reduction in the tariffs they had applied on each other in the wake of ‘Liberation Day’ on 2 April, military metaphors were close at hand, with the deal being described as a ‘truce’ or ‘ceasefire’ in the ongoing trans-Pacific trade war.
But if recent ceasefires in Gaza and Ukraine offer any lesson, it’s that ceasefires at best stop what should never have been started — and at worst are only a temporary reprieve before even more suffering.
This reprieve and the 90-day respite may be more akin to the Phoney War before World War II — the 8-month period after the allies declared war on Germany when little happened before the conflagration in the Second World War began.
US tariffs on Chinese imports have been reset at a baseline rate of 30 per cent, down from a peak of 145 per cent, and have fallen from 125 per cent to 10 per cent on the Chinese side. The US numbers remain higher for key exports like steel, aluminium and electric vehicles, while China continues to impose elevated tariffs on American agricultural products and semiconductors.
The reasonable interpretation is that the White House was finally spooked by the potential political consequences of chaos in financial markets, inflation spikes and empty shelves that loomed if the China tariffs remained at their peak. Trump’s approval rating is hovering in the low 40s, with most US voters now expressing concern about rising consumer prices and supply chain uncertainty.
To return to war talk again: the fact not recognised well enough by the White House was that in this trade war China had escalation dominance. As Martin Wolf pointed out in a widely-shared column, it’s easier for governments to backfill demand than supply. China’s exporters stood to take a hit from being closed off to US markets, but the real pain would always be felt by US consumers and businesses as shipments of goods from China ground to a halt. China doesn’t want a trade war and it is not in its interests to retaliate, but if its leaders felt the need to, it could do so from a stronger position.
Even if the 30 per cent baseline agreed to in Geneva sticks, it’s hard to see which of the competing (and indeed contradictory) rationales for the tariffs offered by the Trump administration is actually being served. Many analysts say it won’t be high enough to make many Chinese manufactured goods uncompetitive in US markets, though it is probably high enough to have inflationary effects. In any case, the fundamental uncertainty about the future of the trade-war ceasefire means it can’t be the basis of the big private-sector reinvestment in US manufacturing that the White House ostensibly wants to see. Something will have to give, and there’s no guarantee the rates will come down.
The upshot is that the rest of Asia has to be prepared for the US–China trade war to grind on, with cycles of thaws and flare-ups, based on the long-term Trumpist goal of decoupling.
As Shiro Armstrong and Rebecca Fatima Sta Maria point out in this week’s lead article, this means that the United States will continue to politicise trade — accusing many Southeast Asian economies in particular of being sites for ‘China-washing’ manufactured exports, ignoring the complexities of regional economies’ participation in China-centred value chains.
The interaction with China is going to be an important ingredient in regional economic development in the decades to come and it is something that regional economies remain highly wary of trading off in exchange for relief from tariffs from the United States.
Indeed, a core goal of the Regional Comprehensive Economic Partnership (RCEP) agreement was to put ASEAN in the driving seat of a framework to enable the deepening of genuinely trans-regional value chains. Sceptics of the deal criticised it for being modest in its effects in reducing tariff barriers and mandating behind-the-border reform. And it is true that it does not go far enough for some parties, which is why some ASEAN dialogue partners are now investing more in upgrading their ‘plus-one’ agreements with ASEAN, a move which Armstrong and Sta Maria say leaves RCEP at risk of falling by the wayside.
But RCEP’s as-yet relatively modest requirements of its members and the breadth of its membership are two sides of the same coin. Significantly, because it excludes potential spoilers like Russia, India and the United States, ‘RCEP-based processes are less likely to be undermined by geopolitical splits and differences of perceived economic interest of the kind that affect other regional platforms such as the East Asia Summit, or bedevil the G20 process globally’.
With an in-built ministerial summit and potential for leader-level summits, RCEP has important potential as a platform for consolidating the political consensus in favour of East Asia’s continued integration and managing any disagreements — regardless of whatever attacks on that project emanate from the United States. That was true when we argued in favour of it previously and has only gotten more true in the time since.
Top of the to-do list for ASEAN governments — to whose long-term development strategies RCEP is attuned and who badly need to reaffirm, through concrete action, ASEAN’s much-vaunted centrality — is to use the rest of Malaysia’s 2025 chair year to put political capital and bureaucratic energy towards rescuing RCEP from going to waste in managing the crisis that the world now faces.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Law, Policy and Governance, The Australian National University.
Source: East Asia Forum
