US Treasury Secretary Scott Bessent told a closed-door investor summit on Tuesday that President Donald Trump’s tariff war with China has led to an unsustainable, two-way “embargo” and that he expected the situation to de-escalate.
Bessent also said in the session on the sidelines of the International Monetary Fund and World Bank’s spring meetings, hosted by JPMorgan Chase, that negotiations with Beijing had not started but that a deal was possible, according to an attendee.
“No one thinks the current status quo is sustainable, at 145 and 125 [per cent], so I would posit that over the very near future, there will be a de-escalation,” he said referring to the top end of most of the tariffs that Trump has put on imports from China and vice versa, respectively. “We have an embargo now on both sides.”
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“China is going to be a slog in terms of the negotiations, because that engagement started ... not yet,” he added. “But I think, again, I think neither side thinks the status quo is sustainable.”
Bessent’s comment that negotiations had not yet started differed from Trump’s own take last week, when he said “top officials” from Beijing were talking with their Washington counterparts and expressed confidence that a deal on tariffs would be reached soon.
Chinese officials had reached out “a number of times”, Trump told reporters in the Oval Office on April 17, adding that the two sides had held good trade talks but that more remained, though he offered no evidence of any progress.
Asked about his treasury secretary’s remarks on Tuesday, Trump offered a somewhat contradictory response, saying “we’re doing fine with China”.
While ruling out playing “hardball” with Beijing, Trump said the US would “set the deal”.
“Ultimately, they have to make a deal because otherwise they’re not going to be able to deal in the United States and we want them involved,” he said.
Trump added that Beijing would not be establishing the terms for a deal and that the US – led by Bessent, Commerce Secretary Howard Lutnick and the president himself – would “be setting the deal and it will be a fair deal for everybody”.
Bessent’s comments, first reported by Bloomberg, helped to send US stocks rocketing. The tech-heavy Nasdaq, the S&P 500 and the Dow Jones Industrial Average all closing more than 2.5 per cent higher.
His observations and their effect on the equity markets underscored the extent to which the world’s economy is riding on negotiations between Washington and Beijing, which account for about 43 per cent of the global gross domestic product when combined, according to the World Bank.
Earlier on Tuesday, the IMF cut its 2025 GDP growth forecast for the US deeper than that of China, as the tit-for-tat retaliations between the world’s two largest economies risk a prolonged decoupling.
The US economic growth rate is projected to be 1.8 per cent this year, down 0.9 percentage points from January’s forecast.
The lowered estimates come as the trade wall that Trump has been erecting since he started his second term, including his so-called “reciprocal” tariffs, have roiled financial markets while weighing heavily on the global economic outlook.
The president paused the new levies on imports from most trading partners for 90 days and allowed an exemption on smartphones and other consumer electronics, but kept the rest of them in place on imports from China.
Shortly after the exemption on electronics came to light, Lutnick said a new tariff category for imports of these products, many of which come from China, would be announced in the coming weeks, keeping a cloud of uncertainty over the markets.
Investors are not the only ones clearly down on Trump’s tariffs.
Speaking at a panel hosted by the Bretton Woods Committee on the sidelines of the IMF and World Bank meetings, US Representative French Hill, an Arkansas Republican, warned that competing objectives and a lack of clarity were fuelling market uncertainty.
“My view is that the president is trying to pursue several strategies all at once, and some of those are in conflict with each other,” said Hill, who chairs the House Financial Services Committee, one of the most influential panels in Congress overseeing banking, monetary policy and international finance.
He described the tariffs as being used both as economic tools and as sanctions – for example, to pressure countries into helping interdict fentanyl or accepting the repatriation of citizens.
The representative said that approach could undermine efforts to forge reciprocal trade deals or address national security issues in key sectors such as semiconductors and aluminium.
“I’m all for a bilateral negotiation or a specific, targeted tariff, rather than something across the board,” he added, suggesting the sweeping scope of the current policy was unsettling investors and business leaders alike.
Separately on Tuesday, at an event hosted by the Washington International Trade Association, a non-partisan organisation in Washington, trade experts said that while negotiations between the US and China are likely inevitable, divisions within the Trump administration are delaying progress.
According to Jeff Gerrish of Schagrin Associates, a Washington-based trade law firm, there are divisions within the administration over how to approach China.
“There are, of course, certain elements in the administration – the hardest of the hardliners – who would never want to negotiate or do a deal with China,” Gerrish, a former official at the US Trade Representative’s office, said in the WITA discussion.
He added, however, that there are more “pragmatic” voices on the president’s team who understand talks are eventually unavoidable.
“With the level of tariffs that both countries have on each other, we essentially have a trade embargo in place,” Gerrish said, using the same term as Bessent.
Gerrish also suggested the administration is working to build leverage by securing trade deals with other countries and is willing to wait.
“I think if they are able to get additional deals done with other countries that they’re negotiating with ... they see that leverage even increasing,” he said.
Christopher Adams of Covington & Burling LLP described serious US-China negotiations as typically beginning either through an existing framework or with a high-level signal from both leaders.
“At this point, we obviously don’t have an existing mechanism. The negotiating teams don’t have a mandate, and we have very little trust between the two sides,” he explained.
Adams, who also worked at the USTR previously, said a joint statement from the US and Chinese presidents would be needed to signal an intent to launch talks and clearly identify lead negotiators.
China’s vice-premier, He Lifeng, has already been designated as the senior-level counterpart, he noted, citing the recent appointment of Li Chenggang as China’s chief trade representative and calling Li a “highly regarded and constructive interlocutor”.
The Chinese “don’t know who they should be negotiating with”, Adams said.
More from South China Morning Post:
- Trump tariffs, uncertainty cloud US, global economy outlooks amid ‘new era’ of trade: IMF
- IMF slashes GDP growth estimates for China, US and world as trade tensions rise
- IMF sees US-China trade grievances, welcomes India tariff cuts
- China’s yuan sees payment popularity rise amid ‘soaring volatility’ in US Treasury market
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