Gordon Chang: This Is Why China Came Out Ahead In Tariff Agreement With The U.S.

Forbes Breaking News

On "Forbes Newsroom," author and U.S.-China relations expert Gordon Chang discussed the U.S.-China trade deal and what comes next as President Trump continues to attempt to open up China to U.S. goods.

Transcript

00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes. Joining me now

00:08is Gordon Cheng, political commentator and author of Planned Red, China's Project to Destroy America.

00:14Gordon, thank you so much for joining me once again.

00:16Well, thank you, Brittany.

00:17I want to talk about a big development that we saw over the weekend in the United States'

00:22trade war with China. The two countries agreed to majorly roll back tariffs for 90 days as

00:27negotiations continue. So the triple digit tariffs are on pause for now. But are you surprised at

00:34seemingly how well the conversations went between the United States and China and how much the tariffs

00:39dropped? I was surprised that the agreement came so quickly. And I'm also surprised at the

00:47significant reduction in tariffs, 115 percentage points for both sides. That really puts us into

00:54a very different situation. And I think that that does pave the way for the discussions.

01:01Though I do think the discussions are going to be very difficult. The reason is that President Trump

01:06said that China has agreed to open its economy. That's something that the world has wanted for

01:11centuries. We thought we got that with the 2001 accession to the World Trade Organization by China.

01:18And we thought we had that with some other trade agreements. But, you know, we'll see. You know,

01:24Trump is a master negotiator. He is willing to use American power. And so we might have a different

01:31result this time. But the forces of history are not working in favor of the American president.

01:38I want to talk really quickly about the tone, the new tone, rather, that both countries seem to be

01:44having. Because both had really tough tones when it came to the other country. China essentially said,

01:50we're not coming to the table under duress. The United States had a tough tone by continuing to

01:55ratchet up those tariffs. According to NPR, a Chinese official described the meeting as candid,

02:01in-depth, and constructive. And the meeting marked, quote, substantial progress and reached important

02:05consensus. So what do you think of that shift in tone and the fact that the tariffs from both sides

02:12were knocked down by triple digits? The tone from the U.S. side has certainly been conciliatory.

02:20Chinese officials speaking to the Chinese public after the agreement was announced still have pretty

02:26much the same language. And I think that's an indication. You know, Xi Jinping for a half decade

02:31has made the argument to the Chinese people that China has surpassed the U.S. and that we're in

02:37terminal decline. So I think it's very difficult for them to talk about this. One topic in conversation

02:45in China that I think is of particular significance to the regime, and that is Americans' general tariff

02:51rate on Chinese goods is 30%, three times higher than the Chinese general tariffs on American goods at

02:5910%. So there's been some explaining that Chinese propagandists have to do. And so I don't think

03:06we're going to really see too much of a change in the tone until there's a final agreement, if that

03:12occurs. To that point, as you said earlier, both countries slashed tariffs by 115%. But China has

03:21tariffs now at 10%. The United States has them from 145% to 30%. So who emerged as the winner and

03:29loser, if there is one? Are both countries winners? What does that look like in your eyes?

03:34Well, I think China came out ahead. And the reason is that our tariffs were remedies for the theft of

03:40intellectual property by China, and also China's increasingly predatory trade practices.

03:46So our tariffs came down a lot. But China is still continuing with the behavior that we abhor.

03:53So in a sense, China got that win. And the other thing that's important here is

03:58that tariffs were the way that the US was keeping Chinese products out of the United States. But

04:05China, the way that China uses to keep American goods out of China is not so much the tariffs,

04:12but are the non-tariff barriers. And for the most part, those non-tariff barriers are still in place,

04:19which means that I think we're going to have a much harder time selling to China than China will have

04:24selling to the United States in this 90-day pause period. So that, again, is a win. Now, a lot of

04:30people are saying that President Trump caved in to the Chinese. I don't actually think that's the case.

04:37I think that Trump let China have a win. And the reason is, as Trump talked about on Monday,

04:45the American tariffs were hurting the Chinese economy. He didn't want to see that distress.

04:50So he wanted to make sure that he had a good environment for coming to a comprehensive trade

04:59deal. So I think that it was basically Trump being magnanimous, rather than him giving in to

05:06the specter of empty shelves or the prospect of inflation.

05:10I know you don't think President Trump blinked. You said before in previous conversations that that

05:17could be a Jedi mind trick. He could be the art of the deal. When we're thinking of the negotiations

05:23that need to happen within this 90-day period of when the tariffs are largely paused, what do those

05:28need to look like? You said that those are going to be hard conversations. What do you think needs to

05:33be hammered out then? Well, the reason why it's going to be so difficult is because China has an

05:40economy that is geared to suppressing consumer demand. And it's because China believes, for one

05:47thing, Xi Jinping has put China on a more footing economy. Plus, also, he wants to support Chinese

05:55factories. And he believes that exports are the way for China to succeed. Now, that's exactly the

06:01opposite of what we want. And I think that essentially Xi Jinping is not going to give up

06:07on things that are central to the Communist Party. The suppression of consumer demand is, I think,

06:15central to China's system. So these conversations are going to be extremely difficult. We got to

06:20remember that in the last year of the Biden administration, the president sent so many cabinet

06:26officials to China to talk about the overcapacity problem. In other words, what we've just been

06:31discussing, and China was intransigent. You know, people may say Trump's a better negotiator than

06:38Biden. I mean, the point is, whether Trump's a better negotiator or not, is probably not going

06:45to make much of a difference because Xi Jinping is going to be adamant. To that point, even in our

06:51last conversation, you said that President Xi wants an economy relying on manufacturing, not the consumer.

06:57He doesn't want the consumer to be empowered. As this temporary agreement stands right now,

07:02is the consumer suppressed? Are they not empowered? What am I thinking if I'm a Chinese consumer right

07:08now? Well, the Chinese consumer is in trouble because the Chinese economy looks like it's

07:14contracting. When we look at price data for February, March and April, we can see the country's in a

07:20deflationary spiral. Because in April, the CPI was down for three straight months. And the producer price

07:28index, which measures factory gate prices, was down 31 straight months. And that means that I think

07:35Chinese consumers are just not in the mood to go out and buy for a number of reasons. First of all,

07:40a lot of them don't have employment. But more important, when you're in a deflationary spiral,

07:46even if you've got all the money in the world, you just want to wait until things get cheaper.

07:51So Chinese consumers right now are not in a good place. And so I don't really see that we're going

07:58to be selling much in the way of consumer goods or at least as much as we would like and as much as we

08:03expect. I know that you didn't see a trade deal happening that would be based on rebalancing the

08:09Chinese economy. Does this new tariff rate, does this rebalance the Chinese economy?

08:15No, it doesn't. Because essentially, our goods are being kept out of China because of non-tariff

08:24barriers. But also, you know, Brittany, it's just that at this point, Xi Jinping doesn't want us there.

08:32And we are seeing, I think, the signs of economic distress. So we aren't going to be selling very much

08:40or as much as we would like to the Chinese consumer. And I don't think this deal really helps us

08:45in any substantial way because it's the non-tariff barriers.

08:50And it took a weekend in Switzerland between U.S. officials and Chinese officials to get this

08:55temporary tariff pause in place. Treasury Secretary Scott Besson said that neither side wanted to see

09:01a decoupling. So when you're looking at the bigger picture here, what do you think that this temporary

09:07agreement does between or for U.S. and Chinese relations?

09:12Well, I think that's a really important question you asked, because although the Treasury Secretary

09:17said that the United States doesn't want to see decoupling, I think that's exactly what the Trump

09:22administration wants. They want supply chains that are more resilient. They want manufacturing in the

09:29United States. And the only way you get there really is decoupling. So when I heard the Treasury

09:35Secretary said that, I sort of rolled my eyes. And of course, the Chinese don't want decoupling.

09:41They want us to remain dependent on factories in China. But that's just not going to happen.

09:46And it's not going to happen not only because Trump is pulling factories out of China,

09:50it's also Xi Jinping is pushing them out. So both push and pull, I think,

09:55go in the same direction in terms of decoupling.

10:00I know you think that the United States wants to see decoupling. I mean,

10:03what happens if these two economies, the world's two biggest economies, are decoupled?

10:08Well, what we're going to see is just trade flows redirected. We're starting to enter the world is

10:18starting to enter into a period of deglobalization. It's going to take a little bit of time before it

10:24becomes clearer. But the signs are already there, which means that not only will be trading, I think,

10:31less, we're going to be trading with countries closer to us. So there'll be more trade in the

10:36Americas and less trade across the Pacific. This will take some time to become clear that this

10:44is happening. But in an era of turbulence, when the skies and the seas are no longer reliably safe,

10:51then companies are going to do what is rational, which is to shorten their supply chains.

10:56You know, supply chains stretched halfway around the world when there were no political barriers to

11:01trade. But now we're seeing those political barriers go up. And companies, of course, are going

11:06to react. I want to read what President Trump posted on Truth Social regarding the talks. He said that

11:13they were a quote, total reset negotiated in a friendly but constructive manner. We want to see

11:18for the good of both China and the US an opening up of China to American business. You're a student of

11:24history here. Do you think that we will realistically see China open up to American business?

11:30No, I really don't think so. You know, it was a point that if this were going to happen,

11:37it would have happened when China joined the World Trade Organization in 2001. But for various reasons,

11:45it didn't happen. And it's just because the communist system really is resistant to foreign business.

11:52And sometimes, you know, in the history of China, we have seen the regime open up,

12:00especially in starting in 1978 with the beginning of the reform era, but not under Xi Jinping,

12:07who has a very different vision of China. His vision is much closer to 1950s China. His hero is Mao

12:13Zedong. And we are seeing Xi Jinping, I think, move China in that direction. He doesn't have the power to

12:20fully push China there. But that's where he can and where he does have the power. That's what he's

12:26doing. So I don't think that President Trump's vision for China is the same as Xi Jinping's.

12:33If China is so resistant to foreign business, what then are you looking out for the next 90 days? Do you

12:40think that the United States can really have meaningful negotiations with China then?

12:45Well, we'll have meaningful negotiations, but I don't think they're going to produce a meaningful

12:50result, especially not within 90 days. And I think that China will just try to delay. Remember, China,

12:58with 90 days, basically, its export factories are going to be producing for Christmas. This is great for

13:05China. And it really relieves a lot of the pressure that we have seen on the export sector.

13:12But I think China is going to say, well, you know, at the end of the 90 days,

13:16we really need to have another 90 days. So I see them trying to delay this. I don't know what Trump

13:24will do in terms of a request for another delay. He will just have to wait. But remember, on TikTok,

13:32we actually have something. On TikTok, Trump gave an extension on his first day in office,

13:38and then he extended the extension. And so probably Xi Jinping is thinking that he can TikTok the United

13:43States on the trade talks as well.

13:45Do you think that the United States and the team negotiating for the United States, do you think

13:51they're missing anything when it comes to China that perhaps you have some knowledge on?

13:56Well, no, they've got far more knowledge than I do. I have a very different outlook on China

14:05and a very different view of where it's going. But I don't know any more than they do by any means,

14:13because they've been involved in these discussions for quite some time. And I'm just an outside observer.

14:18What then, as an outside observer that has plenty of expertise in this area, are you looking out for

14:25in this 90-day period? I'm actually looking to see what Apple will do. You know, it's very interesting

14:33that on the first of this month, Tim Cook said that during the current quarter that most of the

14:40production of iPhones for the U.S. market will come from India. And he said the production for

14:46other devices such as iPads will come from Vietnam. That to me is really startling because Apple has

14:53the most difficult to move supply chain. And if Apple can make that statement, then, you know,

14:59basically anybody can move their supply chains. So I'll be watching what companies actually start

15:06to do during this 90 days. Because although, you know, companies may say, well, if the U.S. and China

15:12are going to settle things, I don't think they are for the reasons we just discussed. And I think

15:16that they're going to try, companies are going to try to protect their supply chains by making sure

15:22they're not as reliant on China. Because if they do, if they still remain reliant on China,

15:28they can get to a point where they don't have a business because they can't bring products into

15:33the U.S. So just as a matter of business necessity, we'll be looking at how companies rearrange their

15:41supply chains. Is China concerned hearing that, hearing Apple saying we're moving our supply chains,

15:48thinking that other companies might take a cue from Apple and move their supply chains out of China?

15:53I mean, how concerned, how big of a concern should that be for China?

15:56Oh, I think China is very concerned about that. You know, we've seen China try to do its best to keep

16:03Apple inside China. And, you know, there's a lot of turbulence now between Pakistan and India.

16:12I don't know, but I would just say this might not be a coincidence. We know that China has tried to

16:20tar India's image as a place for manufacturing. They've done that for years and years.

16:27Right now, I'm sure that people in Beijing are extremely concerned about Tim Cook's announcement.

16:34Well, there is certainly a lot to look out for, especially in this 90 day temporary pause.

16:40And Gordon Chang, I always appreciate your perspective. I hope you can come back on and join me

16:44as we see more developments play out. Thank you so much for the time.

16:47Well, thank you so much, Brittany. I really appreciate it.

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