This year, the trade war between China and the US escalated quickly. Both sides came back to the table almost immediately.
Washington and Beijing held their first ever face-to-face talks in Geneva over a weekend after President Trump increased tariffs to 145% on Chinese products. China responded by imposing a tax of 125% on US imports. This brought nearly $600 billion worth of trade to a standstill.
The same officials now call the discussions productive, and speak of a “total resetting.” What actually took place behind-the-scenes over the weekend? And what is next for the United States and Canada?
Why have the US and China sat down together now?
Why have the US and China sat down together now?
Geneva’s talks were not planned in advance. The Geneva talks only took place because both parties realized that the situation was spiraling out of control.
Trump’s “Liberation Day”, which was a massive increase in tariffs on trading partners in April and imposed huge duties, marked the biggest change in trade policy in years.
China responded to the many requests for exemptions.
It was almost a collapse in the bilateral trade, with a long list of negative consequences, including a slowdown of growth, rising costs, and real risks of supply chain failure.
Even within the US, there was pressure. Retail executives said that continued tariffs could leave the shelves bare by summer. Others compared it to the first days of the Pandemic.
The US GDP is already declining in the first quarter 2025. Damage control has become more urgent.
Goldman Sachs predicted that core inflation would double by year’s end to reach 4%. Talks were no longer an option. The talks were essential.
What was actually discussed at Geneva
What was actually discussed at Geneva
Officially, “much has been agreed upon,” but no joint statement in detail has yet to be released.
The pieces of the puzzle are slowly falling into place.
The two-day meeting lasted nearly 15 hours. Bessent said that the discussions were fruitful.
He suggested that the difference between the two countries might have been less than people thought.
The main focus was on tariffs. Trump proposed a reduction in duties to 80% on Chinese imports, which is a substantial drop from the previous 145% but high enough to maintain pressure on Beijing.
China hasn’t confirmed whether or not it plans to reduce the 125% tariffs. Both sides admit, however, that escalating tariffs could seriously harm both economies.
Also, there were broader questions on the table. The US demanded more access to China’s consumer market, and stricter controls over the export of precursors for fentanyl.
China sought to clarify what the US was looking for and rejected calls for structural changes.
The negotiations didn’t resolve the long-standing conflicts, but did open a new dialogue channel.
Is this the end of trade war?
Is this the end of trade war?
No. Tariffs are still in effect, and there has not been an announcement of a final agreement. The tone of the conversation has not changed.
China’s state-run media called it a step towards averting further conflict. The US called them a reset.
This is significant considering the fact that the last round of negotiations in 2020 resulted in a deal on paper that fell apart quickly. The stakes and urgency are much higher this time.
The costs of the project are now real and not theoretical. Chinese exports dropped by 21% to the US in April while production in factories slowed down to its lowest level for over a decade.
Imports of Chinese goods are predicted to drop by up to 80% on the US side in the second half 2025.
National Retail Federation predicts that overall imports will decline for the very first time since mid-2013. They are not distant projections, but indicators that show the stress of both economies.
This gives both parties an incentive to work towards a gradual rollback.
Even if tariffs were cut to 80%, economists say that the US would still have one of the most effective import taxes in recent history. It would still be a good start.
Why is this important beyond tariffs?
Why is this important beyond tariffs?
The trade dispute has become more than just a trade issue.
Trump has linked the tariffs with other issues like fentanyl and industrial policy. China views this as part of an attempt to curb its growth.
Any deal is likely to go well beyond the product level. This is fundamentally about economic influence and power.
It’s not just about the global risks.
World Trade Organization already reduced its forecast for 2025 of merchandise trade to -0.2%, which is three points lower than prewar expectations.
IMF then cut its global growth forecasts and warned that dividing the world into blocs of economic activity could lead to a long-term slump.
It’s not only their issue. It’s everyone’s.
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The US will likely release more details on Monday about the Geneva negotiations, including a possible phased reduction of tariffs.
It may also include sectoral relief such as temporary restrictions on electronic products, agricultural products, pharmaceuticals or early benchmarks related to Chinese market accessibility or fentanyl compliance.
If this structure holds, officials have suggested that the momentum will continue. A direct phone call could be made between Trump and Xi Jinping.
As businesses wait for clarification, they will still be facing high costs and rerouting of supply chains as well as pricing pressure.
Three possible directions are visible in the future.
If both parties agree to mutual enforcement, measurable results and agreed upon outcomes that are measurable then a full-scale reduction in the range of 20% could be achieved. However, this is optimistic.
Gridlock is another outcome: the talks stagnate, the tariffs remain, and economic consequences continue.
The most probable scenario would be a limited agreement where China made concessions to the United States on fentanyl, and opened a few industries. Tariffs were raised as a tool for negotiation.
Both governments can claim victory without addressing the structural problems. This reset is only important if the changes are enforceable and lasting, not just for headlines.
Tariffs are still in place for the moment. The conversation continues.
In a war of no-winners, this is more than many expected.
What is the difference between escalation and reset in this post? The ICD first reported on what really occurred during US-China Trade Talks in Geneva
