Having admitted that the 145% tariff rate imposed on China is unsustainably high, the Trump administration has conceded that it’s time to stop playing hard ball and rebalance.
Share markets in the United States rallied overnight in response to the revelation by Treasury Secretary Scott Bessent that it’s now time for a sweeping agreement that winds down the trade war with China.
“If they want to rebalance, let’s do it together,” Bessent said during an appearance at the Institute of International Finance (IIF) in Washington, D.C.
Unconfirmed reports by senior White House officials suggest levies are expected to finally settle somewhere between 50% - 65%, which would still be relatively high.
Restore consumption-led growth
Bessent said the U.S. now wants China to provide a schedule and achieve measurable progress for a foundational shift in its economy toward consumption-led growth.
These proposed changes are expected to spur demand for U.S. exports and narrow the bilateral trade gap, which Washington has been urging Beijing to close since 2006.
Bessent cited recent data that shows the Chinese economy tilting even further away from consumption toward manufacturing.
“China’s economic system, with growth driven by manufacturing exports, will continue to create even more serious imbalances with its trading partners if the status quo is allowed to continue,” he said.
Excessive exporting
Bessent has accused Beijing of moving away from the creation of the U.S.-China Strategic Economic Dialogue, an initiative promoted decades ago by former Treasury Secretary Hank Paulson.
Rather than boosting domestic demand, Bessent also accused Beijing of seeking to overcome its economic challenges by exporting excess production of manufactured goods, an “unsustainable” approach that harms China and the entire world.
However, Bessent also made it clear that the Trump administration has pulled short of offering to unilaterally cut import duties on goods from China.
“China needs to change. The country knows it needs to change. Everyone knows it needs to change,” Bessent said.
“And we want to help it change — because we need rebalancing too,” he said, noting the imperative to reduce U.S. borrowing and federal debt.”
Blueprint for financial stability
Bessent has also outlined what he called “a blueprint to restore equilibrium to the global financial system and the institutions designed to uphold it,” specifically the World Bank and International Monetary Fund (IMF).
“The IMF and World Bank have enduring value,” Bessent said.
“But mission creep has knocked these institutions off course. We must enact key reforms to ensure the Bretton Woods institutions are serving their stakeholders — not the other way around.”
He said that “Intentional policy choices by other countries have hollowed out America’s manufacturing sector and undermined our critical supply chains, putting our national and economic security at risk.
“President Trump has taken strong action to address these imbalances and the negative impacts they have on Americans,” said Bessent.
“This status quo of large and persistent imbalances is not sustainable. It is not sustainable for the United States, and ultimately, it is not sustainable for other economies.”
In response to Bessent 's comments, China’s Ministry of Foreign Affairs said the door for talks was “wide open” but the Trump administration should stop making threats if it wanted to reach a deal.
“We do not wish to fight, nor are we afraid of fighting,” spokesperson Guo Jiakun.
“Continuing to exert extreme pressure is not the correct way to have dealings with China”.
Jiakun was referring to a threat by the U.S. President that if the China doesn't engage in striking a more mutually acceptable tariff deal, a rate will be set without their involvement.
IMF downgrade
Due to conflicts over global trade the International Monetary Fund has downgraded its forecast for U.S. growth this year to 1.8% from 2.7% in January.
Based on IMF data, the global economy in 2025 will likely expand 2.8%, or 0.5 percentage point less than projected in January.
Meanwhile, economists at JPMorgan Chase and Citigroup, now expect the Trump-initiated trade war to push the U.S. into a recession.
The Peterson Institute for International Economics sees a 65% probability of a downturn during the next 12 months.