Truce in Korea Signals U.S. Capitulation After Tariff—Proof China Withstands Pressure
President Donald Trump and Xi Jinping meet in South Korea.
Image source.
Early on the morning of Thursday, October 30th, President Trump and Xi Jinping met in South Korea, marking the first in-person meeting between the two in the new administration. The meeting resulted in a truce, widely seen as a massive victory for China, as the U.S. conceded a major reduction in tariffs, suspended all port fees on Chinese ships, and delayed U.S. initiatives that would have blocked Chinese firms from accessing U.S. technology. American concessions stemmed from Chinese countermeasures, which included comprehensive quotas on industries that could impair key U.S. industries. For the first time, China walked into negotiations with leverage, having proven their ability to stand up to American attacks. The truce in South Korea was a direct result of the U.S. having overestimated the impacts of its tariffs, and China expertly working around tariffs to strengthen its position in the global economy.
Despite trade tensions, the Chinese economy has flourished over the last year, experiencing a 5.3% growth in GDP, funded primarily by, shockingly, stability in exports. While the U.S. share as a whole of Chinese exports has decreased by over 30% over the course of the current Trump administration, overall Chinese exports have stayed stable. Simply put, when the U.S. reduced its purchases of Chinese goods, China looked elsewhere. The decrease of $14 billion in Chinese exports to the U.S. has seen a complementary $7 billion increase in Chinese exports to ASEAN countries (who often pass the goods on to the U.S.). This was not just a drastic reduction; it was a methodical diversification that fundamentally altered the beneficiaries of the trade war.
While exports have not had quite the negative impact that the U.S. anticipated, they have still resulted in a decrease in the acceleration rate of exports. Therefore, China has been forced to adapt and utilize domestic policy to insulate its economy from the potentially disastrous impacts of a trade war. In response to tariffs, Beijing deployed a full array of monetary and fiscal policies to allocate key resources to domestic industries, aimed at boosting domestic consumption and maintaining the stability of supply chains—a pivot from the traditional Chinese economic model of investment-fueled growth. Beijing, fueled by the trade war, is now shifting from this method and moving to technological self-sufficiency and strategic security over the old pursuit of growth at any cost.
This shift is precisely what gave China its leverage in trade talks. The transition of exports to ASEAN countries and adjustment in Chinese policy muffled the impact of American tariffs and proved that China could withstand the economic attacks. Furthermore, its dominance in refinement of the rare earth minerals essential for U.S. tech and defense provided a powerful counter-weapon, which it used to force the U.S. into concessions on technological access.
The meeting in South Korea proved less of a negotiation than framed, and more of a capitulation. American concession served as a quiet admission that their primary economic weapon could be flawed. By methodically rerouting its economy, insulating domestic markets, and sharpening counter-weapons, Beijing has so far proven that it can not only survive a trade war, but win it.