We Have Been Here Before

ONE OF THE MOST awaited interactions between Chinese President Xi Jinping and US President Donald Trump took place on October 30 on the sidelines of the APEC summit in South Korea and has signalled a thaw in relations. Washington has indicated that it will lower tariffs on Chinese goods by 10 per cent, and put off its “50 per cent rule” that put Chinese subsidiaries on a restricted-exports list. An investigation into Chinese shipping sector and new docking fees has also been kept in abeyance for a year. There are indications, too, that curbs on export of some chips could also be done away with. In turn, Beijing has pledged to purchase more American soybean, and has also agreed to delay the introduction of its latest round of rare earth export controls though earlier restrictions on the critical minerals that have upended global trade remain.

Trump has also indicated that China will begin buying of US energy in large amounts. Despite the tenuous truce, a broader deal on trade issues remains elusive. In the wake of the Xi-Trump summit, US Treasury Secretary Scott Bessent has already muddied the waters by terming Beijing as an unreliable partner, and that Washington should take measures to blunt China’s leverage on rare earths. Such rhetoric highlights the sentiment that the summit has only papered over the larger cracks, and delayed tensions over trade. This is because despite the tariff cut, the levy on Chinese products remains more than 40 per cent. The other issue is about expectations of both sides. In a social media post, Trump hailed the meeting using his usual style of throwing superlatives sans substance, and that both nations had reached an agreement on “almost everything”. The Chinese assessment is much more sober, that the accord reached at the Xi-Trump meeting was a work-in-progress, and that the bureaucracies from both nations would continue negotiations to reduce problems, and build a solid foundation of US-China relations.

Trump began his second term, trying to pick up the pieces from his previous stint at the White House. His worldview essentially remained the same: that nations were not buying enough from the US, and that consequently, tariffs could be wielded as weapon to level with the countries. On China, too, his grievances were similar, typically, that Beijing was taking Washington for a ride with respect to trade laws, stealing intellectual property. Trump’s belief was that he had brought China to heel during his first term with a trade deal in 2020. But the sudden outbreak of the Covid pandemic had scuppered the deal. With Trump’s political comeback, he put back not just the deal on the frontburner, but also sought to address the larger economic imbalance between the US and China. Since “tariffs were a beautiful weapon”, Trump 2.0 reckoned that they could be used to redress America’s trade deficits with other nations. This sentiment led to the announcement of the sweeping Liberation Day levies in April, and subsequently, the US administration chasing bilateral deals on trade. Yet, in typical Trumpian fickleness, tariffs were paused on all with the sole exception being China.

What ensued was a tariff war between Washington and Beijing with US levies escalating to 145 per cent at one point. Yet, Trump 2.0 perhaps did not contemplate that Xi had been amassing his own arsenal. During the trade war 1.0, Beijing had responded to Washington’s onslaught with retaliatory tariffs, and it quickly came around to the negotiating table to hammer out a settlement. This time round, China played its own deadly trump card weaponising the exports of rare-earth elements to hurt America Inc. Additionally, Beijing was also testing its own belief that democracies based on public franchise become a cesspool of corporate lobbies, making them susceptible to economic coercion. Now, Beijing’s leverage brought Trump 2.0 to the negotiating table. Several rounds of negotiation led to Washington waving the white flag to bring down tariffs from the three-digit highs. Tasting blood, China unveiled wide-ranging curbs in October, tightening export controls on lithium batteries, rare earths, equipment needed to produce and process the materials, magnet manufacturing. In what constituted China extra-territorialising its domestic law, entities engaged in manufacturing products that required the Chinese inputs would need to obtain a licence before the output was sold to a third country. In effect, these restrictions were aimed at crippling supply chains, and became a huge leverage before Xi sat face-to-face in the summit with Trump. The current US-China dynamics closely resemble a Mexican standoff. Picture this. Trump is armed with export controls, while Xi has rare-earth leverage, with each side watching the other for every minute move.

Yet, moving beyond the trapeze over trade, what has caused considerable consternation among US allies and partners is the branding of the Xi-Trump meet-up as the ‘G2 summit’. A rising China has meant the reopening of territorial and maritime disputes with Japan, Taiwan, India, and in the South China Sea. This development led to counter-mobilisation led by middle powers like India, Japan and Australia under the Quad framework with the US leading the trio in countering Beijing’s belligerence. On the other hand, a ‘G2’ conceptualisation ostensibly places China on par with the US, purportedly giving the short shrift to other regional powers. Could Quad and G2 coexist?

On ground, operationalising a G2 will mean a retreat of US service personnel and bases from East Asia, and a concomitant review of security guarantees to US allies like Japan and South Korea. Such was the worry that US Secretary of State Marco Rubio had to clarify that the US would not walk away from Taiwan in exchange for sweetheart trade deals. During his visit to Japan, Trump alongside the newly elected Prime Minister Sanae Takaichi, gave the service personnel stationed there a pep talk. US Defense Secretary Pete Hegseth and Union Defence Minister Rajnath Singh inked the “10-year Framework for US-India Major Defence Partnership” in Malaysia. US allies and partners seem to have been assuaged for now. Yet, the apprehension of the US approach on China remains with rhetoric like “Homeland First” dominating American political discourse. Another development that follows the Xi- Trump meet is Hegseth’s interaction with his Chinese counterpart, and the subsequent decision to open military communication.

For India, it seems like a redux of the 1970s and 1980s—Washington warming up to Beijing and mollycoddling Islamabad’s jihadist military brass. Pakistan has revitalised terror groups that have been emboldened to carry out the April 22 Pahalgam attack on civilians. Despite the move to normalise India-China relations, troop deployment on both sides of the Line of Actual Control remains a worry, along with reports that China is expanding missile bases in Tibet. New Delhi will thus be keenly watching the new dyad dynamics.