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US and China resume tariff talks to extend truce

Senior U.S.-Chinese negotiators met in Stockholm, Sweden on Monday to address long-standing economic disputes that are at the heart of the trade war between the two countries. They hope to extend a ceasefire to keep tariffs from rising sharply.

China faces a deadline of August 12 to reach a durable agreement on tariffs with the administration of President Donald Trump, after Beijing reached a preliminary agreement in June. This was to put an end to weeks' worth of escalating tariffs.

If there is no agreement, the global supply chain could be thrown into turmoil by duties of more than 100%.

The Stockholm talks are led by U.S. Treasury Sec. Scott Bessent, and Chinese Vice Premier He Lifeng. They take place a few days after European Commission president Ursula von der Leyen met Trump on his golf course in Scotland, to try to clinch a possible deal with a baseline of 15% tariffs for most EU products.

Analysts on both sides of Pacific believe that the talks in Sweden's capital will not produce any breakthroughs, but they could help prevent further escalation. They also say it may create the conditions for Trump to meet with Chinese President Xi Jinping later this year.

The previous U.S.-China talks held in Geneva and London between May and June were aimed at reducing the U.S. and Chinese tariffs from triple-digit rates and restoring the flow for rare earth minerals that China had stopped and Nvidia AI chips, and other goods, which the United States had stopped.

The talks so far have not covered broader economic topics. The U.S. has complained that China's export-driven, state-led model floods the world's markets with cheap products, while Beijing complains that U.S. export controls on technology goods are meant to stunt Chinese economic growth.

Bo Zhengyuan of China's consultancy firm Plenum, a Shanghai-based partner, said that Stockholm would be the first meaningful round in U.S. China trade talks.

DEALS! DEALS!

Trump has succeeded in getting other trading partners to accept higher U.S. Tariffs, such as Japan, Vietnam, and the Philippines.

He said that there was a 50% chance that the U.S. could reach an agreement with the 27 members of the European Union, and that Brussels "wanted to make a deal extremely badly".

Two of Trump's most senior trade officials will travel to Stockholm after the Scotland talks. They are Commerce Secretary Howard Lutnick, and U.S. Representative Jamieson Greer.

Analysts believe that the U.S. and China negotiations will take more time because they are more complex. China's hold on the global rare earth mineral and magnet market, which is used in everything from car windshield wiper motors to military hardware, has proven to be a powerful leverage point for U.S. industry.

TRUMP-XI MEETING?

The background to the discussions is speculation regarding a possible Trump-Xi meeting in late October.

Trump said that he would decide in the near future whether to travel to China for a historic trip to resolve trade and security tensions. Any plans to meet with Xi would be derailed by a new flare-up in tariffs and export control.

The Stockholm meeting provides an opportunity to lay the foundation for a Trump China visit, said Wendy Cutler. Vice president of the Asia Society Policy Institute.

Bessent already stated that he would like to extend the deadline of August 12 to avoid tariffs reverting to 145% for the U.S. and 125% for the Chinese.

Analysts said that China would likely ask for a further easing of U.S. export controls on high-tech products and a reduction in the multi-layered U.S. duties totaling 55 percent. Beijing has claimed that these purchases will help reduce the U.S.-China trade deficit, which is expected to reach $295.5 billion by 2024.

China faces a 20% tariff on fentanyl related goods, a reciprocal 10% tariff and 25% duty on industrial goods. These tariffs were imposed by Trump during his first term.

Bessent also stated that he would be discussing with He China's need to rebalance the economy from exports towards domestic consumer demand. China would have to end a long-running property crisis and increase social safety nets in order to encourage spending by households.

Michael Froman, former U.S. Trade Representative during Barack Obama's Administration, said that such a change has been the goal of U.S. Policymakers for 20 years.

Can we use tariffs effectively to force China to change its economic strategy fundamentally? Froman, who is now the president of the Council on Foreign Relations, said that it remains to be determined. Reporting by David Lawder, Additional reporting by Laurie Chen at Beijijng and Editing by Helen Popper

(source: Reuters)