Trade War
Newsletter 260 - May 18, 2025
With US-China trade and tariffs dominating the news, I’ve decided to make this week’s Trade War unpaywalled and free to read in its entirety.
Welcome to the 260th edition of Trade War.
The US and China announce a temporary halt to their trade war, bringing tariffs down dramatically. Critical mineral restrictions now in the spotlight as Beijing begins to allow export of rare-earth magnets. And Trump says he’s willing to visit China to meet Xi.
Investment banks upgrade China economic growth forecasts. Walmart brass warn that prices will keep rising while latest University of Michigan consumer sentiment index shows Americans also expect inflation.
Southeast Asia emerges as a top choice for re-exporting Chinese goods, with US tariffs on China still high at 30%. Fast-fashion retailer Shein to set up massive warehouse in Vietnam to circumvent American levies. And Nvidia CEO says there is no AI chip diversion to China.
Notable/In depth ~
China beats out the US in global popularity for first time ever
Chinese underground banking network services Sinaloa drug cartel
Struggling tech company with China ties buys $TRUMP memecoin
Temporary halt to trade war, tariffs slashed
The U.S. and China announced Monday a temporary halt to their trade war, bringing tariffs down dramatically, with Trump heralding it as a “total reset” in relations.
After two days of meetings in Geneva between teams led by China’s Vice Premier He Lifeng and U.S. Treasury Secretary Scott Bessent, Washington has agreed to cut tariffs on China from 145 percent to 30 percent, for the next three months, while Beijing said Chinese levies on the U.S. will drop to 10 percent from 125 percent.
China also pledged to “suspend or remove” all non-tariff countermeasures taken against the U.S. since April 2.
The reductions went far beyond what many expected. “I thought tariffs would be cut to somewhere around 50 percent,” said Pinpoint Asset Management chief economist Zhiwei Zhang.
“The consensus from both delegations this weekend is neither side wants a decoupling,” Bessent said after the talks. “We want more balanced trade, and I think that both sides are committed to achieving that.”
The talks were “candid, in-depth and constructive,” and the meeting “achieved substantial progress and reached important consensus,” China’s Vice Premier He said.
While the truce represents “a substantial de-escalation,” the U.S. “still has much higher tariffs on China than on other countries,” Mark Williams, chief Asia economist at Capital Economics, said in a research note.
“In these circumstances, there is no guarantee that the 90-day truce will give way to a lasting ceasefire.”
“Establish a mechanism”
”The Parties will establish a mechanism to continue discussions about economic and trade relations. The representative from the Chinese side for these discussions will be He Lifeng, Vice Premier of the State Council, and the representatives from the U.S. side will be Scott Bessent, Secretary of the Treasury, and Jamieson Greer, United States Trade Representative,” the two sides announced in a statement.
“These discussions may be conducted alternately in China and the United States, or a third country upon agreement of the Parties. As required, the two sides may conduct working-level consultations on relevant economic and trade issues.”
Read the full Joint Statement on U.S.-China Economic and Trade Meeting in Geneva.
“Too simple, sometimes naive”
“A big question I have, what about all those non-tariff measures that precede April 2nd? What about what we used to hear about when we talked about trying to do a trade deal with China—unfair industrial subsidies that create an unfair, uneven playing field for foreign companies and American companies in China . . . What happened to coercive technology transfer requirements? China has been doing that for probably literally decades,” I say, commenting on the outcome of the talks.
“Trump says that this is a historic win and China is opening up—I don't know what to say—I guess I'll just finish by quoting the immortal words of former Chinese leader Jiang Zemin, made to Hong Kong reporters, about 25 years ago: ‘Too simple, [sometimes] naive.’”
Watch the whole live video from Monday below:
Rare earth restrictions in spotlight
China’s restrictions on the export of rare-earth minerals are now in the spotlight after Beijing and Washington called for a temporary truce in their trade war on Monday.
Some immediate positive news: China has slowly resumed exports of rare-earth magnets, key to the manufacture of electric vehicle motors. Access to them had been frozen for global customers for several weeks after Beijing announced it was requiring companies to apply for export licenses for seven rare earths in early April.
“We are expecting to see an acceleration in the issuance of the required export license [for rare earths] and exporters with clients in the U.S. might get a license soon,” a source said to Reuters.
“Magnets containing rare-earth elements such as dysprosium and terbium are considered highly strategic. They are used in everything from F-35 jet fighters and missile systems to iPhones and electric vehicles,” reports the Wall Street Journal.
“It’s basically like a tap. They can decide when to export and when to not, and the control is in their hands, completely,” says Benchmark Mineral Intelligence analyst Neha Mukherjee.
China has a near dominance over the sector, mining some two-thirds of global rare-earth minerals and processing 90 percent. As well as electric vehicles, smart phones, missile and radar systems, along with many more high-tech products, also all rely on the critical minerals.
“Dominating this sector is probably one of their most important sources of leverage over the U.S. and over the world,” said Dexter Roberts, nonresident Senior Fellow at the Atlantic Council, a think tank based in Washington, D.C., in an interview with Fortune.
“Now that they punished the U.S. with rare earth [export controls], they’re not going to take away this part of their economic arsenal,” Roberts said.
Trump says willing to meet Xi in China
U.S. President Donald Trump has said he’s willing to meet Xi Jinping in China.
In interview with Fox News that ran Friday, Trump described the U.S.-China relationship as “important” and said he was “certainly” willing to travel to China for talks with the Chinese leader.
Earlier in the week, Trump suggested that the two leaders might speak over the telephone, following Monday’s announcement of a 90-day reprieve in the trade war.
Still, Trump also said his just-finished three-day visit to Saudi Arabia, Qatar, and the United Arab Emirates was aimed at limiting China’s influence over the Middle East.
“They were going to China, and that was going to be their parent, and that’s not happening,” Trump said of the three countries, adding that they were “very important to keep in our fold.”
Investment banks upgrade China growth
Investment banks are upgrading their China economic growth forecasts following Monday’s tariff deal with the U.S.
Goldman Sachs has raised its China growth forecast to 4.6 percent up from 4 percent, while UBS now puts it between 3.7 percent and 4 percent, up from 3.4 percent previously.
“The trade war de-escalation may lead to a smaller shock on China’s exports and economic growth, as well as more modest additional policy stimulus in the rest of 2025,” says UBS chief China economist Wang Tao.
Goldman also lowered the likelihood of a U.S. recession to 35 percent from its previous 45 percent projection and raised its fourth quarter forecast for U.S. growth to 1.0 percent, up from 0.5 percent before.
Walmart says prices still going up
Walmart brass warned Thursday that prices in its stores are still going up, even with the temporary U.S.-China tariffs reprieve.
“Given the magnitude of the tariffs, even at the reduced levels announced” earlier this week between the U.S. and China, “the higher tariffs will result in higher prices,” Walmart CEO Doug McMillon said on a company’s earnings call.
“What we’re looking at is upward pressure began in April and placed through the entire year on things that are imported,” he said.
Chief Financial Officer John David Rainey struck a similar note in a CNBC interview, also on Thursday.
Avocados, bananas, coffee and roses will be affected by tariffs on Colombia, Costa Rica and Peru, while toys and electronics will be hit by the higher tariffs on China, according to Walmart’s CFO.
“We’re trying to navigate this the best that we can,” Rainey said. “But this is a little bit unprecedented in terms of the speed and magnitude in which the price increases are coming.”
“I want to thank President Trump and Secretary Bessent for the progress made recently. We're hopeful that it leads to a longer-term agreement between the US and China that would result in even lower tariffs. We will do our best to keep our prices as low as possible. But given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure given the reality of narrow retail margins,” said Walmart CEO McMillon in the quarterly earnings call.
“We're positioned to manage the cost pressure from tariffs as well or better than anyone. But even at the reduced levels, the higher tariffs will result in higher prices.”
Check out the full earnings call here (pdf).
Michigan index shows surging inflation expectations
“Year-ahead inflation expectations surged from 6.5 percent last month to 7.3 percent this month,” says University of Michigan Surveys of Consumers Director Joanne Hsu.
“This month’s rise was seen among Democrats and Republicans alike. Long-run inflation expectations lifted from 4.4 percent in April to 4.6 percent in May, reflecting a particularly large monthly jump among Republicans.”
The fact that Republicans too are increasingly worried about inflation seems likely to have spooked Trump, contributing to his eagerness to strike a deal with China. The fact that American consumers also fear losing their jobs no doubt added to concern in the White House.
“The Chinese went into talks with the upper hand because, unlike Trump, they aren’t facing mid-term elections in 2026, according to Dexter Roberts, nonresident senior fellow at the Atlantic Council Global China Hub,” reported Bloomberg News earlier. “Sitting here in the United States, this has been very damaging for Trump,” Roberts said, adding that the Chinese can “eat bitterness” for longer.
Southeast Asia re-export choice for Chinese firms
Vietnam, Indonesia, Thailand, and other countries in Southeast Asia are proving top choices for firms looking to reroute Chinese goods to avoid still high U.S. tariffs on China.
That reality drove a more than 20 percent jump in Chinese exports into the region last month and has become a major concern of the Trump administration as it attempts to crack down on trans-shipments, reports the Financial Times.
“Southeast Asia is coming under more pressure than other regions in the world . . . because of origin-washing,” says Sharon Seah of Singapore’s Iseas-Yusof Ishak Institute. “The U.S. thinks that the Chinese will use [the region] as a backdoor to continue exporting to the U.S. markets.”
“If you are being asked to squeeze down or out Chinese content, and apply very stringent rules of origin, that’s going to get complicated. Governments are going to have to make a political calculation and an economic one,” says Deborah Elms, head of trade policy at the Hinrich Foundation.
Shein to open first warehouse in Vietnam
Chinese fast-fashion online retailer Shein is preparing to lease its first warehouse in Vietnam, apparently a tactic to circumvent U.S. levies on China.
Shein will lease some 15 hectares of industrial land for a warehouse located near Ho Chi Minh City, Vietnam’s commercial capital, reports Reuters, citing two people familiar with the deal. Ho Chi Minh City has an international airport as well as the country’s largest port for Chinese imports and a second port that carries most ocean exports to the U.S.
Shein has also been deeply reliant on the U.S. de minimis duty-free exemption for goods worth $800 or less. That exception was ended for China and Hong Kong by the Trump administration on May 2.
"It would be dangerous for them not to diversify," says Manish Kapoor, CEO of e-commerce solutions firm Growth Catalyst Group. And while Vietnam still receives the de minimis exemption, that could soon “be gone completely,” he adds.
Nvidia CEO says no AI chip diversion to China
Nvidia CEO Jensen Huang says his company’s artificial intelligence semiconductors are not being sold illicitly in China.
“There’s no evidence of any AI chip diversion. These are massive systems. The Grace Blackwell system is nearly two tons, and so you’re not going to be putting that in your pocket or your backpack anytime soon,” Huang said in an interview with Bloomberg News in Taipei.
“The important thing is that the countries and the companies that we sell to recognize that diversion is not allowed and everybody would like to continue to buy Nvidia technology. And so they monitor themselves very carefully and they’re quite careful about that,” the 62-year-old CEO added.
Huang’s comments come just after Trump’s decision to cancel the so-called AI diffusion rules put in place by the Biden administration, that aimed to stop shipments being diverted to China. Huang also joined a U.S. delegation to the Middle East led by the American president earlier in the week.
“Limiting American technology around the world is precisely wrong,” Huang said. “It should be maximizing American technology around the world.”
Notable/In depth
China beats out US in global popularity for first time ever
“The United States is becoming less popular globally in the aftermath of Donald Trump’s return to the White House, according to new data,” from the 2025 Democracy Perception Index, surveying over 110,000 respondents in 100 countries, reports Politico.
“A majority of people surveyed had an overall negative perception of the U.S., marking a steep decline from last year . . . Meanwhile, China kept improving its global standing, overtaking the U.S. for the first time and recording mostly positive perceptions in all regions except Europe.”
Chinese underground banking network services drug cartel
“On a hazy Southern California morning, undercover police officers watched Jiayong Yu step out of a Range Rover in a strip-mall parking lot and walk into a Chase bank with a black-leather backpack full of cash. At the teller window, Yu pulled out stacks of bills and waited while a woman fed them into a cash-counting machine,” report the Wall Street Journal’s Dylan Tokar, Justin Baer and Vipal Monga.
“Federal authorities allege that Yu worked for an underground banking network that bought dollars at a discount from Mexico’s Sinaloa drug cartel and sold them at a premium, largely to Chinese nationals in the U.S.”
“The network allegedly handled some $50 million in proceeds from drug trafficking over four years, depositing a portion of the tainted cash at ATMs and teller windows at major banks including Citibank in cities around Los Angeles County, according to federal prosecutors.”
Struggling tech firm with China ties buys $TRUMP memecoin
“A struggling technology company that has ties to China and relies on TikTok made an unusual announcement this week. It had secured funding to buy as much as $300 million of $TRUMP, the so-called memecoin marketed by President Trump,” report the New York Times’ David Yaffe-Bellany and Eric Lipton.
“GD Culture Group, a publicly traded firm with a Chinese subsidiary, has only eight employees, its public filings show, and recorded zero revenue last year from an e-commerce business it operates on TikTok, the Chinese-owned video-sharing app.”
“But on Monday, GD Culture Group became the latest business with foreign ties to seize on Mr. Trump’s crypto venture, which channels profits directly to the Trump family and has generated conflicts of interest that have alarmed ethics experts . . . In its statement, GD Culture Group, which is traded on the Nasdaq, said it would spend $300 million on a stockpile of Bitcoin and $TRUMP, using proceeds from a stock sale to an unnamed entity in the British Virgin Islands, a popular tax haven. It confirmed that investment plan in a securities filing late Tuesday.”
Montana picture
Late spring in Western Montana.
