00:00So we are wondering how China might respond to all this. Of course, they've been on a long
00:05holiday, so no immediate reaction just yet. But what is your sense of how China might approach
00:11this? Yeah, that's a great question. Thank you, Avril. I think the most important thing is that
00:16for China, this is really a bit of a win. And that's because under the rubric that the president
00:22has set to replace his IEBA tariffs, it's potentially a 10% or a 15% global surcharge.
00:28So overall, what that means is it means that once those go into effect, then the overall
00:34tariff rate for most Chinese goods is lower than it was before. And so unlike with the
00:41EU, where it creates a lot of uncertainty, in the case of China, it means that the terms
00:47are now much more favorable to China than they were just before. And remember, if you think
00:51about the magnitude of this, if the surcharge is 10% compared to where it was before,
00:59that's, you know, potentially $100 million for every billion dollars of trade that's
01:06affected. So the cost reduction is really substantially lower. So it's a win for China.
01:14Will they see it as a win, given that also it causes a lot of uncertainty? I mean, just
01:18trying to decipher whether this is a 10% tariff or a 15% tariff, how does this compare with
01:24fentanyl tariffs, most favored nations and other countries as well?
01:29Okay, that's a great question. So unlike most countries, the tariff situation on China before
01:34the Supreme Court ruling was really pretty complex. They had the baseline MFN rate, which was a few
01:39percent. They had the 301, Section 301 tariff rates from Trump 1.0 and from the Biden administration,
01:47which were about 25%. Then on top of that, they had 10% fentanyl tariffs, and now 10% tariffs
01:54for
01:54reciprocal tariffs. So the part that's in play because the Supreme Court's ruling are just those
01:59last two, the fentanyl tariffs and the reciprocal tariffs. So those today have fallen to zero. But when
02:06they go into effect with the new surcharge under Section 122, whether it's 10% or 15%, that's still
02:13going to be a substantial reduction from where they were before. So the MFN rate won't change,
02:17the 301 rates won't change, but the other tariffs will be lower once those go into effect under either
02:23scenario, 10% or 15%. So yeah, China will see that as a win.
02:31And to your point, I suppose it's also the idea that the Supreme Court striking down these tariffs also
02:37means there's less leverage for the U.S. president. I mean, what does that mean for the contours of the
02:44gathering between the two leaders late March into early April?
02:49That is such an important question. I'm glad you asked that. And so leverage in a negotiation
02:55only really matters if one side has got more leverage than the other side. If both sides have
03:00leverage, the effect is much more ambiguous or tends to cancel the other side out. So where we've been
03:07is that you may remember that after Liberation Day last year, when the U.S. raised tariffs unilaterally
03:12on China, China responded tariff for tariff. They went toe-to-toe with the United States. And that's
03:18how we got into this escalatory spiral of triple-digit tariffs, which didn't serve either country's
03:25interest. And then you may remember that despite the posturing, the U.S. blinked first and asked China
03:31to go meet them in Geneva so they could reduce those. So ever since Geneva, tariffs have really
03:37lost most of their edge as leverage for the United States. And so if you look at that as the
03:42first
03:43truce in the U.S.-China trade war of 2025 or of Trump 2.0, tariffs then, that was a front
03:50on that war
03:51that was fought to a standstill. And then the trade war moved to other areas, things like export controls
03:57and sanctions. And this is a case where also both sides have demonstrated they've got potentially
04:03significant leverage over the other, and they've largely fought to a standstill.
04:09Most notably, China has played the rare earths card, which not only hurt industry in the United
04:15States, but also around the world. And so this is a case where the U.S. absolutely has leverage,
04:21but the Chinese have counter leverage. So what that sets us up for is a meeting in Beijing
04:27in maybe less than 40 days, where the two presidents are not going to be able to use that
04:33leverage. And that means, ideally, this will be a situation where both sides have to focus on
04:38what would be a win for both countries. And as you've implied previously, what would be the biggest
04:44win for both countries is to bring some predictability to the business and investment
04:48climate so companies know how to invest and they know how to plan. Where we've been for the last
04:53year has been the constant instability and unpredictability has meant that investment
04:59decisions have gone unmade. It's meant the U.S. has lost manufacturing jobs every month since
05:04Liberation Day. So this potentially will bring a chance to bring some much-needed stability into this
05:12relationship. That would be the biggest outcome.
05:14The Trump administration has not necessarily even said who he's taking from the business
05:19community to China. So how well is the administration preparing for that state visit
05:26into Beijing? And what would your members like to see being achieved in order to bring some more
05:32certainty to the relationship?
05:34Yeah, this has been shocking. I was just in Beijing before the holiday. And meeting after meeting after
05:41meeting, what bled into all of those from Chinese officials was a mix of somewhere between being
05:47irritated and being apoplectic at the U.S. not preparing for this visit. Normally, when you've
05:54got a presidential visit, planning starts months in advance. By now, the two sides should be having
05:59regular calls. They should have exchanged lists of deliverables. They should have planned out the actual
06:04physical mechanics of the visit. But none of that has happened. And so it just shows that on the U
06:11.S.
06:11side, the U.S. side hasn't done its homework yet to decide what it wants out of this trip. And
06:16the
06:16longer they wait, the harder it then becomes to deliver real deliverables that could help U.S.
06:22competitiveness for the U.S. economy. But you also hit at one other thing that I think is really
06:26important. And that is if we look at the president's other trips, he's always taken CEOs with him because
06:32business is what's on his mind. And that's what he's been focused on. That's especially true with
06:37China. But even now, as of Friday, they haven't decided if they want CEOs to go on this trip,
06:44much less started to extend invitations. So for a trip that's less than 40 days away,
06:48we don't have a single CEO that knows if he or she is going to be invited. But that just
06:54is,
06:55I think, sort of emblematic of the administration not having really done its homework on this visit yet.
07:00If I can add just one more thing that I think is really important to frame this visit,
07:05and that is, you know, China is a country that takes protocol extraordinarily seriously,
07:10much more than most countries that I've dealt with around the world. And I think in this case,
07:16it's important because the Chinese recognize three levels of state level visit or of leader level visits.
07:23And so you've got working level visits where a state leader will come in and have official meetings.
07:28They have official visits where you have, which are much larger with more protocol.
07:33This is, for example, like Keir Starmer's visit from the UK just a few weeks ago. That was an
07:38official visit. But Trump's visit, both sides have announced it's a state visit. And that takes
07:44everything up to 11. It takes everything up much higher on the protocol front. And so, you know,
07:50as part of that, there's the state dinner in the Great Hall of the People that could involve
07:55hundreds of people. And if President Trump shows up with a delegation of five,
07:59then that just doesn't work out protocol wise. And you can understand why.
08:02Sean, you raise a good point about how the state level meeting is going to also perhaps raise the
08:09stakes. I mean, could you talk a bit more also about the extent in which there will be clarity
08:16for businesses as they have to adjust in the meantime their investment, their hiring decisions
08:23as well?
08:24Yeah. So that's what everyone's hoping for, right? What does the U.S. want out of the trip?
08:30The U.S. wants some access to markets. It wants to sell aviation. It wants to sell airplanes.
08:35It wants to sell agriculture and maybe some other things. And what American business is pressing
08:41the administration to do is what it hasn't yet done. And that's to talk about the longstanding
08:47market access issues, the longstanding non-tariff barriers that discriminate against American
08:51products, American exports, and American business in China. And so that's what American business is
08:57looking for. And then what American business is looking for and what the Chinese are looking for,
09:02again, is a stable and predictable business climate so companies can plan. So if we're talking
09:10about what the level of tariffs will be coming into the United States, the administration wants to
09:14emphasize manufacturing in the U.S. But remember, what does the U.S. import from China? It imports
09:20final goods like, say, television sets, but it also imports a huge number of intermediate goods,
09:26things that go into American manufacturing and power American factories. Until we know in the long
09:32term what that's going to cost, how do you build a new factory and how do you price that in?
09:36So until we get stability, jobs will continue to hemorrhage from the United States because it's
09:42just impossible to invest.
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