With the tariff truce extended to November 10, US and Chinese negotiators can now focus on shaping a trade deal in the lead-up to a possible summit between US President Donald Trump and Chinese President Xi Jinping this autumn. While engagement has occurred at senior levels since the first meeting in Geneva, Switzerland, several months ago, it appears that much of the discussion since then has centred around ensuring the smooth flow of Chinese critical minerals and magnets to the United States.

Now, negotiators need to pick up the pace and take a detailed look at other issues that could be part of a future agreement while recognising that there are no easy solutions.

The positive news is that both sides, to varying degrees, seem to want a deal that helps to stabilise the bilateral relationship. Quick tariff escalations that occurred earlier made both sides realise that tensions had gone off the rails. Officials point to the phase one agreement concluded during Trump’s first term as evidence that bilateral deals are possible, even in an environment where strategic competition prevails.

But Beijing has learned important lessons from those earlier negotiations, which relatively favoured Washington’s interests. Since then, China has taken steps to avoid a repeat. Beijing is thus likely to insist on a more balanced agreement this time, meaning it will request concessions from Washington in areas such as the relaxation of export controls and the lowering of tariffs.

Second, China has successfully reduced its dependence on the US as an export market since 2017, with exports to the US in 2024 only accounting for 14.7 per cent of its total, down from slightly over 19 per cent in 2018. It has turned to other partners to help fill its import needs, including Brazil, now its largest soybean supplier.

Finally, it has built out a toolbox going way beyond tariffs to respond to what it considers to be unjustified US measures. Under its export control law, which mirrors US policies in important ways, China has restricted its exports to the US of critical minerals and magnets. Beijing has shown it is more than willing to use this leverage to create more favourable negotiating conditions.

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08/18/2025 | Wendy Cutler | South China Morning Post

One does not have to be a Trumpist to believe that the large and persistent trade deficits of the US need correction. In 1980, the US was a net creditor to the rest of the world by an amount equal to 20% of GDP. In 2025, it is a massive debtor. US external debt is now 90% of GDP and rising unsustainably. Trade deficits will have to be reduced materially to prevent a crisis down the road. The question arises: How best could Trump have achieved this objective when he took office? This is a non-trivial question in counterfactual history.

We think that for any such policy, the starting point must be fiscal consolidation. Such fiscal consolidation could be combined with either tariffs or with a currency depreciation. The latter would be better. But in the case of the US such a currency change could only be achieved in the presence of some kind of ‘Mar-a-Lago currency accord’.

Some observers have been calling for fiscal consolidation and others have been arguing for a ‘Mar-a-Lago accord’. The contribution of this column is that we identify a need for both approaches. Thus, our column is in the same spirit as the articles by Obstfeld (2025) and Clarida (2025). We develop our argument by going back to the ideas in James Meade’s book on the balance of payments (Meade 1951), as set out by Trevor Swan, and as developed by Mundell, Fleming, and Dornbusch.

Trump has imposed tariffs on US imports to improve the US trade balance. But tariffs without concomitant macroeconomic retrenchment would not do this. If the exchange rate is floating, as in the US, tariffs tend to reduce exports. This is because the reduction in demand for imports would tend to strengthen the exchange rate directly; and exchange rate appreciation is also likely since the rise in interest rates caused by higher domestic economic activity would lead to higher capital inflows. Moreover, the central bank is likely to reinforce the rise in interest rates in response to the tariff-induced rise in the price level. In a fully employed economy such as the US, the success of tariffs as a policy to switch demand towards domestic goods is thus conditional on there being sufficient fiscal contraction to make room for the extra demand for domestic goods. (Note that the US dollar has in fact depreciated. Needless to say, this is because of the chaotic manner in which Trump’s tariffs were introduced, which created huge uncertainty, reduced the incentive to invest, raised the risks of a US recession, and created doubts about US creditworthiness.)

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08/19/2025 | Vijay Joshi & David Vines | Centre for Economic Policy Research

The multilateral, rule-based trading system underpinned by the WTO has been undermined by the unilateral imposition of U.S. tariffs on nearly all its major trading partners. Notably, the reciprocal tariffs announced by President Donald Trump on April 2, 2025 ranged from a baseline of 10% to as high as 50%—intended, in his view, to counter the disadvantages the U.S. faced under the existing system. More consequential than the rising tariffs, however, has been the abandonment of the foundational principle of non-discrimination among WTO members, accompanied by heightened trade policy uncertainty.

The ensuing bilateral negotiations during the 90-day pause in the implementation of the reciprocal tariffs were thrown into uncertainty after the U.S. Court of International Trade ruled—in May 2025 that the President had exceeded his authority under the International Economic Emergency Power Act of 1977 (IEEPA) in imposing such tariffs. The Trump administration appealed the decision at the Federal Circuit Court of Appeals and the case is expected to eventually reach the Supreme Court. 

On July 31, the White House announced a decision further modifying the reciprocal tariff rates to somewhat lower than the original schedule but still ranging from 10% to 41% across different groups of countries. In parallel, sections 201 and 301 of the Trade Act of 1974 and section 232 of the Trade Expansion Act of 1962 also remain in effect. As of August 7, 2025, the average tariff rate in the U.S. is estimated at 18.3% the highest since 1934. For comparison, the average effective tariff rate at the beginning of 2025 was 2.4%.

Other countries have responded to U.S. measures by seeking negotiations with American officials, adopting approaches that vary from threats of retaliation to accommodation, depending on the bilateral balance of power vis-à-vis the U.S. By the end of the 90-day pause, eleven countries including the UK, Vietnam, the EU and Japan had reached preliminary trade deals with Washington—tentatively agreeing to lower rates than the maximums announced on April 2 but still higher than pre-tariff levels. Meanwhile, China and the U.S. agreed on a framework to guide future negotiations and implementation—talks that have since been extended several times.

Essentially, global trade has bifurcated into two distinct regimes. Trade with the U.S. which in 2023 accounted for 10.22% of world exports and 13.16% of world imports is increasingly subject to high tariffs and other barriers, shaped by unilateral U.S. actions and subsequent bilateral negotiations. By contrast, trade among other countries is likely to continue under largely unchanged pre-2025 tariff structures. To mitigate the impact of U.S. measures, many states have sought to strengthen trade and investment ties with one another. In this context, plurilateral and regional arrangements emerge as logical alternatives to the fraying multilateral system. While they offer opportunities to cushion the shock of U.S. protectionism, their effectiveness will depend on specific circumstances. Ultimately, the extent to which such arrangements are implemented will shape the patterns of trade diversion and trade creation during and after the tariff war.

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08/19/2025 | Hung Q. Tran | Policy Center for the New South

Italian statesman and writer Niccolo Machiavelli said that power (the Lion) and deception (the Fox) are two essential means for the conduct of foreign policy and international relations. Rulers should always seek advantages while defending the interests of their state in order to ensure its survival. However, Machiavelli faltered in his notion of foxing other states just to ruthlessly pursue one’s own self-interest as a ruler. Because, a ruler who always foxes others is likely to be outfoxed in return too. Machiavellian principle rests on the premise that the world is a dangerous place and at the same time it is an opportune place. The international relation is based on the intelligent calculation of one’s power and interests as against the power and interests of rivals and competitors.

This classical realist approach drove the present President of the United States of America, Donald Trump, to levy tariffs of his liking on all the countries having trade relations with the USA. He announced a series of sweeping new tariffs by invoking the unprecedented powers under the International Emergency Economic Powers Act (IEEPA) on imported goods on April 2, 2025 widely orchestrated as “Liberation Day” by his newly sworn-in administration to signal a shift in trade policy and move toward protectionism. As per President Trump, this executive order of imposing uneven tariffs across different countries in a subjective manner and not allowing them to impose commensurate amounts of ‘reciprocal tariffs’ on US goods is part of his much-touted election campaign of MAGA (Make America Great Again). A universal 10% tariff took effect on April 5 for all the countries, in any case.

Trump’s tariffs triggered a trade war with most of the US friends and its strategic foes. The trade war escalated when Trump imposed a 25% tariff on Mexico, 35% on Canada, 39% on Switzerland, 40% on Myanmar, 41% on Syria, 50% on both India and Brazil. It also escalated the China – United States trade war when US baseline tariffs on Chinese goods peaked at 145% and Chinese tariffs on US goods reached 125% in retaliation. In a truce expiring on November 9, the US reduced its tariffs to 30% on Chinese imports while China reduced that to 10% on American imports. India has been singled out by President Trump to slap an additional 25% penalty on the already existing 25% tariff for purchasing Russian oil during the ongoing Russia-Ukrain war and may go even higher in days to come. India has declared Trump’s tariff as being ‘unjustified and unreasonable’ as import of Russian oil after the commencement of the Russia-Ukraine war (in 2022) took place because traditional supplies were diverted to Europe. The United States at that time actively encouraged such imports by India for strengthening global energy markets stability. The former US Ambassador to India, Eric Garcetti, confirms the same.

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08/20/2025 | Binod K. Pathak | Nepal Khabar