China is celebrating victory against American trade warriors

“China was being hurt very badly.” According to Donald Trump, the 90-day trade truce between America and China is a win for his administration and its tactics of kamikaze trade escalation. A common view inside China is the exact opposite: America, faced with tanking markets and upset consumers, blinked. The truce is seen as a national triumph that has secured concessions, confirmed America’s low pain tolerance, raised gdp forecasts and made China a hero in the global south.

The often-acid state media sounded a note of magnanimity: “The road ahead still requires both sides to explore and shape it together with wisdom and courage,” intoned Xinhua. Others were more blunt. “A great victory,” crowed Hu Xijin, a nationalist commentator.

Yet there are worries for China. One is that the deal is so good that Mr Trump may change his mind. The other is that the Communist Party might now backpedal on reforms.  Many in China had feared a protracted near-embargo after Mr Trump’s “liberation day” announcement on April 2nd. Six weeks later he has backed down.

America will slash the “reciprocal” tariffs on Chinese goods from 125% to 10%, for at least 90 days. That puts China in the same position as other countries, none of whom struck back at America. An earlier additional levy of 20% designed to punish China for its role in the fentanyl trade will remain in place, but its specificity suggests it could be negotiable. America more than halved a separate 120% tariff on e-commerce packages valued below $800 that enter America via a separate “de minimis” customs regime.

In return China will cut tariffs on American goods to 10%. It lifted its ban on importing Boeing aircraft, which it needs. Constraints on rare-earth exports may be eased. The result, it is claimed, is proof America cannot stomach a fight. Americans can’t cope “when their supermarkets run out of goods,” wrote one netizen under a statement about the deal posted by the American embassy on social media.

China’s economy will still suffer the effects of the tariffs that remain. But forecasts for gdp growth have now risen. Goldman Sachs, a bank, raised its estimate for this year from 4% to 4.6%. It expects exports to remain stable rather than fall by 5%, as it previously had predicted. China will get kudos in the global south, too. “Someone has to stand up and say that hegemony is unreasonable,”  Zheng Yongnian of the Chinese University of Hong Kong in Shenzhen told one outlet. “China’s approach has won the support of so many countries.” Xi Jinping, China’s president, rubbed it in at a meeting with Latin American leaders on May 13th, saying China must “champion true multilateralism and uphold international fairness and justice”.

The sight of America making threats it is not prepared to carry out may have broader implications. China’s leaders may conclude that America’s appetite to punish China, let alone attack it militarily over Taiwan, is lower than previously thought. Perhaps coincidentally, on May 13th China pushed through new national-security laws tightening its grip on Hong Kong. The brief war between India and Pakistan has spawned more nationalist jingoism; a Chinese warplane used by Pakistan may have shot down Western-made Indian ones.

Yet the tentative deal does come with two downsides for China. One is that the prospect of an economic crunch could have forced leaders to undertake deeper reforms to rebalance its economy towards domestic consumption. Now the pressure has decreased. That may explain the muted reaction on the Hong Kong stockmarket, which fell by 2% on May 13th. The other danger is that Mr Trump rethinks the deal or reneges on it. One sign of this is in the container-shipping market: rather than pricing in a return to business as usual, shippers are rushing to move goods in the 90-day window, according to Bloomberg, presumably in part because they worry what might happen after it. In Mr Trump’s new world it is easy to call America’s bluff and hard to cut a deal that lasts. ■

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