For businesses and consumers alike, the joint statement from Washington and Beijing offered signs of a détente in the U.S.-China trade war. Following the weekend’s Geneva talks, both sides have decided to roll back tariffs. By some estimates, average U.S. rates on Chinese goods will fall to about 40 percent, while China’s tariffs on U.S. products will drop to roughly 33 percent. It is tempting to interpret this pullback from the brink—a self-inflicted embargo—as the “total reset” President Trump claimed. But tariffs are still too high, and Groundhog Day–like market rallies should not be confused with strategic success.
If the brinkmanship of the past several weeks is to have any lasting value to the United States, then the Geneva talks were just the beginnings of negotiation over economic security and technology issues that are at the heart of the U.S.-China relationship. That will remain the test for the Trump administration’s tariff gambit: Will it prove to be a master class in leverage that delivers “a big beautiful rebalancing”—or an own goal of historic proportions that erodes the United States’ global economic leadership? For now, 90-day reprieves and on-again, off-again import duties underscore the capricious nature of U.S. economic statecraft.
Looking ahead, both sides have promised to put in place a mechanism to prevent misunderstandings in future talks. Should future talks materialize (still an “if”), the Trump administration would do well to condition additional tariff relief on progress on longstanding issues with China such as intellectual property theft, cyber espionage, forced technology transfer, dual use risks, supply chain chokepoints, nontariff barriers to U.S. firms, and currency manipulation. We can expect that China, far from being on the back foot, will press its own demands. Beijing will likely use tariff talks to gain concessions in terms of U.S. export controls, outbound investment restrictions, and the broader scaffolding of U.S. tech dominance—from chip design to AI standards.
By most accounts, China is in a better negotiating position than in 2018. It is able to rely on internal demand, and it has diversified trade relationships, including in Asia—evident in last week’s joint statement with Japan, Korea, and the Association of Southeast Asian Nations. It has also made strides across advanced technologies, including AI, biotech, and quantum, and in critical minerals self-sufficiency.
The United States, by contrast, has yet to articulate a coherent negotiation approach. Public signals from the president and senior officials point to four competing strategies—each with different assumptions, goals, and political costs.
First, there is the president’s vision of a “deal of all deals”—a bilateral rebalancing with China. In theory, such a deal would give Washington leverage with surplus economies, including those like Japan and Korea that the administration believes should pay more for the U.S. defense umbrella. In practice, Beijing will drag out negotiations and stall over issues it sees as vital to its long-term technological and economic sovereignty. A deal that goes beyond optics and addresses core structural issues is hard to see at this point—and even if reached, it would be hard to enforce.
Second, Secretary of the Treasury Scott Bessent’s so-called “encirclement strategy” aims to corral allies into a coordinated front against China. But this strategy is already running into trouble. Japan and Europe remain wary, not just of China, but of the inconsistency of the United States’ trade agenda—evidenced by Washington’s insistence on maintaining auto tariffs even as it calls for allied unity.
Third is the idea of a Mar-a-Lago Accord—a multilateral currency agreement modeled on the 1985 Plaza Accord. But the idea of such an accord, originally proposed by Council of Economic Advisers Chair Stephen Miran, before joining the administration, assumes a level of U.S. leverage and international consensus that simply does not exist today.
That leaves the most concerning path: drift. The risk is that the United States falls back on bilateral deals with important but smaller partners like the United Kingdom and India, while China consolidates its place at the center of a reconfigured trade order. In this scenario, Washington is not decoupling—it is isolating itself. And the real casualty is U.S. credibility.
Meanwhile, the economic damage is beginning to bite. Before this morning’s statement, ocean freight bookings from China had dropped by nearly 65 percent. Ports are facing a Moody’s downgrade. Warehouse and trucking jobs are under pressure. Retailers have warned of looming shortages. Today’s reprieve may slow the bleeding, but the harm is done—and the remaining tariffs remain a heavy burden.
Despite Secretary of Commerce Howard Lutnick’s claims that tariff costs fall on foreigners, the evidence says otherwise. The Federal Reserve is warning of stagflationary risks. Yale’s Budget Lab now estimates that the average U.S. household will pay an additional $3,800 this year due to higher prices—a regressive tax if ever there was one. U.S. farmers, meanwhile, just took a hit with China’s abrupt cancellation of a 12,000-ton pork shipment, the largest since 2020.
Financial markets, too, are showing strain. The equity selloff following Liberation Day coincided with rising bond yields, surging gold prices, and a weakening dollar. These signs of capital flight, however temporary, suggested that foreign owners of U.S. dollar-denominated assets were looking for alternative safe havens—worrying signs about a potential tipping point.
Seemingly to calm these worries, Secretary Bessent recently sought to explain the administration’s economic agenda—one that rests on tariffs, deregulation, and tax incentives to revive U.S. competitiveness. Elements of the agenda are laudable: a focus on faster permitting and streamlining of regulations, tax breaks for manufacturing investment, and a push for domestic supply chains. But the overall strategy rests on a flawed premise: that trade is the main culprit behind U.S. deindustrialization. Automation, shifting demand, and underinvestment in innovation played a big role as well.
That does not bode well for a tariff agenda that echoes the failed import substitution policies of the mid-twentieth century in Latin America, Asia, and Africa—a form of protectionism that bred inefficiency, cronyism, and rent-seeking. A U.S. version of import substitution would erode an investment and business environment that has been the envy of the world—eroding the relative trust and probity in market institutions are the bedrock of U.S. exceptionalism.
A path to an actual “total reset” exists. It starts with technology, not tariffs, and specifically with a national program to achieve full-stack leadership in AI. The AI stack represents a composite of core elements of U.S. technology competitiveness—frontier models and applications, advanced chips in data centers, and digital networks, as well as technology enablers such as energy access, critical minerals access, and skilled workers. Aside from AI’s potential to spur innovation and productivity gains across sectors and firms, and drive exports, it provides a “golden opportunity,” to echo Microsoft Vice Chair and President Brad Smith, for the United States to demonstrate its ability to marshal national resources—public and private—to take the pole position in other areas such as quantum, biotech, digital assets, and nuclear fusion.
The good news is that all the elements of such a national program are already part of the administration’s policy agenda. But they need to be made coherent and given the highest priority. To that end, a technology pivot should take the following steps:
Revise and reissue the president’s executive order on the America First Trade Policy as an America First “Trade and Technology” Policy. It should focus key departments and agencies around the goal of leadership on AI and other technologies. Trade negotiations should use tariffs, export controls, inbound and outbound investment screening, and commercial diplomacy to secure all necessary components of the AI stack. Rather than focus on the bilateral trade balance with any given country, the priority should be securing cost-competitive access to intermediate inputs as well as unfettered access to critical minerals. The Department of Commerce’s Investment Accelerator attracts foreign direct investment across all elements of the AI stack. U.S. commercial diplomats should be focused on opening AI export markets and marketing a coherent U.S. AI and tech offer, especially to the Global South.
Use speed to power, the measure of how fast a potential data center can access electricity to power its stock of chips, as an organizing approach to focus the administration’s energy dominance agenda on AI. Going forward, plans should include expanding nuclear energy and modernization of the grid—both of which may require strategic federal investments.
In implementing the directives in President Trump’s letter to Michael Kratsios, the administration should galvanize science and technology institutions, including the national labs and private universities, around three to five grand scientific challenges related to AI, quantum, fusion, and other advanced technologies. The effort should include restoring public funding for both curiosity- and mission-driven research, including through prizes, competitions, and other innovative tools.
The design of the administration’s proposed U.S. Sovereign Wealth Fund should be focused inter alia on AI and other critical emerging technologies with a dual goal of accelerating lab-to-market transitions for AI and AI-enabled breakthroughs as well as deploying capital to remove bottlenecks to AI diffusion through the economy (for instance, including infrastructure investments with a longtail).
Finally, it should include a national talent strategy to develop small- and medium-sized enterprises as well as workers that are poised to drive AI applications through the economy—something that can take some time if the history of other general-purpose technologies is to serve as a guide. This agenda will require practical immigration solutions and a program for developing home-grown talent using public and private institutions.
Tariffs may have brought China to the table, but they largely detract from the goal of national technology competitiveness. And when it comes to AI and other advanced technologies, the United States needs an “it’s already too late” strategy that aligns all its policies and tools and provides a respite from the policy volatility of the past few months.
To read the full analysis as it was published by CSIS, click here.