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After the third round of negotiations between China and the US, the US suspended tariff exemptions on small packages. Will the two sides restart the trade war?
The third round of China-US economic and trade consultations concluded on July 29, but during this round of consultations, the two sides demonstrated significant and substantial differences, and no substantive results were achieved.
Both sides are currently focused on extending the suspension of the 24% tariffs that were temporarily suspended in May. Both sides have agreed to extend the suspension of these tariffs until November. However, the suspension of tariffs cannot truly resolve the trade disputes between China and the US, nor can it hide the reality that there are significant contradictions between the two countries on economic and trade issues.
On July 30, Trump signed another executive order aimed at suspending the tariff exemption system for small parcels shipped to the US from all countries.
This order will take effect on August 29, and any imported goods valued at $800 or less will be subject to tariffs based on the value of the parcel and its country of origin.
This is another escalation of measures following President Trump's order in May to impose tariffs on small packages originating from China and Hong Kong.
Small packages primarily impact the cross-border e-commerce industry. The Trump administration justified the tariffs by claiming that “small packages facilitate the transportation of fentanyl and other illegal substances.”
However, this rationale is highly questionable. If the U.S. government is concerned about the potential for small packages to facilitate the transportation of fentanyl and other illegal substances, the best approach would be to ban such packages from entering the country rather than imposing tariffs on them.
This is because the cost of “fentanyl or other illegal substances” is already extremely low, and imposing tariffs on small packages would not prevent such items from entering the U.S. It would only impact the flow of low-profit legitimate goods into the country.
Shortly after the U.S. decided to suspend its small package exemption policy, China also took action, with the Cyberspace Administration of China (CAC) summoning NVIDIA for a meeting. On July 31, the official WeChat account of the Cyberspace Administration of China (CAC) posted a message stating, “Recently, NVIDIA's computing chips were reported to have serious security issues.”
Prior to this, U.S. lawmakers had called for advanced chips exported from the U.S. to be equipped with “tracking and location” features. Additionally, experts in the U.S. artificial intelligence field revealed that NVIDIA's computing chips already have mature “tracking and location” and “remote shutdown” technologies.
The Cyberspace Administration of China's recent meeting with NVIDIA primarily aimed to require the company to explain the security risks associated with vulnerabilities and backdoors in its H20 computing chips sold to China, and to submit relevant supporting documentation.
In response to the Cyberspace Administration's meeting with NVIDIA, the Chinese side stated, “There is currently no information available.” Given the current dynamics between China and the U.S., does this indicate a possibility of a “resumption of the tariff war”? In reality, the likelihood is not very high.
First, although there are some significant differences in the current trade negotiations between China and the US, overall they are still on track. After the third round of economic and trade consultations between China and the US ended, Trump immediately agreed to the proposal to extend the tariff suspension for another 90 days after learning that both sides intended to do so at the meeting.
This indicates that Trump is generally satisfied with the current state of trade negotiations between China and the US, while China maintains an open attitude toward trade issues with the US. As long as the US is willing to engage in talks with us on an equal and respectful basis, China is willing to continue the discussions.
Second, Trump has explicitly stated that he will visit China this year, and also indicated that China will visit the US this year. Under these circumstances, the Trump administration cannot afford to engage in a “trade war” with China.
Third, China holds the “ace” of rare earths, and the U.S. cannot and dare not act recklessly. The Trump administration has already experienced the power of rare earths.
According to information disclosed by U.S. Trade Representative Greer, during the third round of China-U.S. trade negotiations, the U.S. side demanded that China “lift restrictions on rare earth exports.”
Before China imposed restrictions on rare earths, the United States and Western countries had already reached an “unrestrained” level of consumption. China's exports of inexpensive rare earths supported the U.S. defense industry supply chain and high-tech supply chain, yet the U.S. side turned around and used these materials to threaten and sanction us.
Therefore, China's rare earth restrictions are both reasonable and necessary. Western countries, having grown accustomed to a life of extravagance, naturally find it uncomfortable to adapt to such austerity.
From these perspectives, the United States dare not and does not wish to engage in another trade war with China. Its current strategy may be to delay as much as possible—first, to slow down China's pace of surpassing the United States; second, to delay the United States' own decline. However, the inevitable law of new things replacing old ones is something the United States cannot delay and must confront.