Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The world has waited for months for a lasting trade
Speaker 2: deal between China and the US, one that could potentially
Speaker 2: cool the tariff war that's been raging between both countries
Speaker 2: in President Trump's second term. On Monday, representatives from the
Speaker 2: US and China hold up in a mansion near Buckingham
Speaker 2: Palace in London to hammer that potential deal out, and
Speaker 2: on Tuesday they were still there. Brendon Murray runs Bloomberg's
Speaker 2: trade coverage. He and other reporters have spent the last
Speaker 2: two days looking for any signs of how the talks
Speaker 2: might be going.
Speaker 1: We've seen a lot of delivery food being brought to
Speaker 1: Lancaster House Otto Lingi both days, the upscale deli and
Speaker 1: dessert chain, but other than that, there's not much information
Speaker 1: coming out.
Speaker 2: So lunch being brought in good sign, bad sign.
Speaker 1: Well, yesterday's lunch was six bags was twelve, so we
Speaker 1: think maybe one side bought lunch for the other. But
Speaker 1: moments after that we saw the Chinese delegation leave for
Speaker 1: a lunch break, so apparently they weren't into it.
Speaker 2: Around five point thirty pm local time, the two sides
Speaker 2: took a break, and a person familiar with the matter
Speaker 2: told Bloomberg they were planning to resume talks at eight
Speaker 2: pm Tuesday night. US Commerce Secretary Howard Lutnik said later
Speaker 2: that the talks went quote really, really well, and then
Speaker 2: while he hoped the negotiations would end this evening, they
Speaker 2: could stretch into Wednesday morning. And Bloomberg's John lu says
Speaker 2: there's still a lot at stake as both sides try
Speaker 2: to find common ground.
Speaker 3: Can the United States accept a China that is three
Speaker 3: times as large economically and has the world's most cutting
Speaker 3: edge technology. Until that day comes, and it may never come,
Speaker 3: we will have trade wars.
Speaker 2: I'm Sarah Holder, and this is the Big Take from
Speaker 2: Bloomberg News Today. On the show inside the latest trade
Speaker 2: negotiations between the US and China, I speak with Bloomberg
Speaker 2: Trade editor Brendan Murray, who's on the ground in London,
Speaker 2: and Big Take Asia host Juan ha sits down with
Speaker 2: John Lu who's been covering developments from Beijing. Could these
Speaker 2: talks mark a pivotal turning point in the tariff war
Speaker 2: between the US and China and what could relations between
Speaker 2: the two countries look like after they're done.
Speaker 3: Well?
Speaker 2: Brendan, You've been covering these negotiations closely over the past
Speaker 2: few months as tensions between the US and China have
Speaker 2: escalated and de escalated. When I spoke with you just
Speaker 2: last week, we talked about how the deal they'd reached
Speaker 2: in Geneva in May was on shaky ground, and how that,
Speaker 2: plus the lack of progress on other tariff deals more
Speaker 2: than halfway through the self imposed ninety day pause, had
Speaker 2: put new pressure on Donald Trump's credibility at home. How
Speaker 2: has that ticking clock played into these talks this week
Speaker 2: in London.
Speaker 1: Well, the focus for the past couple weeks for the
Speaker 1: Trump administration has really been on China. It's been almost
Speaker 1: exactly a month since they emerged from talks in Geneva,
Speaker 1: Switzerland with what they called a deal, which was essentially
Speaker 1: a ceasefire in the very high crippling tariffs that they
Speaker 1: were imposing on each other. They brought those down to
Speaker 1: a significant degree, the US to thirty percent, China brought
Speaker 1: its tariffs down to ten percent, and they said, let's
Speaker 1: spend the next ninety days talking through these difficulties that
Speaker 1: we're having, reaching agreements on specific issues. But what's happened
Speaker 1: In the meantime, is China has shown the world how
Speaker 1: much leverage it has. China controls most of the world's
Speaker 1: rare earth minerals. These are things that make electric car
Speaker 1: batteries and lasers and all sorts of advanced manufactured goods,
Speaker 1: and China controls most of the supply of them and
Speaker 1: the processing of them. And what's happened and is China has,
Speaker 1: either deliberately or through its bureaucratic process of permitting export
Speaker 1: licenses for those goods, has shown the world how much
Speaker 1: pain it can inflict on auto supply change aerospace supply
Speaker 1: chains if it slows the export of those minerals. And
Speaker 1: the US recently has said, look, you're not complying with
Speaker 1: the agreement that we made in Geneva. We expected those
Speaker 1: permits and those rare earth minerals to start flowing to
Speaker 1: us sooner than that. Let's get back to the negotiating table.
Speaker 1: That's what led Donald Trump to urge Sijinping to get
Speaker 1: on the phone and say, we need to have a
Speaker 1: talk about this because this is going to hurt our economy.
Speaker 1: And it's not just the US. The European companies are
Speaker 1: complaining about it. Indian automakers are also in trouble. If
Speaker 1: China withholds these very important critical minerals really could become
Speaker 1: a worldwide issue. The US, in the meantime started to
Speaker 1: make moves to put controls on things like software for chips,
Speaker 1: for jet engine parts, for nuclear reactor materials, some chemicals.
Speaker 1: So the US struck back and said, hey, we have
Speaker 1: stuff that you need too, and so China has an
Speaker 1: interest in seeing that stuff move to them too.
Speaker 2: So how did they get back to the negotiating table.
Speaker 2: Who was more instrumental in getting these talks actually planned
Speaker 2: in London?
Speaker 1: Well, Donald Trump has been urging Shijimpang to have a
Speaker 1: talk for months now. That urgency has increased recently in
Speaker 1: part because of the dragging of the feet that the
Speaker 1: US would say that China has done with the rare
Speaker 1: earth mineral those exports. And so the two leaders got
Speaker 1: on the phone and the team's got the go ahead
Speaker 1: to meet here in the UK. It's a bit of
Speaker 1: a neutral territory. They're at a venue right now that's
Speaker 1: not a US government site, not a Chinese government site.
Speaker 1: It's neutral ground where they can hash out these differences.
Speaker 2: Heading into these talks. The US's main priority was securing
Speaker 2: access to China's rare earth minerals, and China's goal was
Speaker 2: to get semiconductor chips from US tech companies like Nvidia.
Speaker 2: But those are big concessions, and Brendan says meeting in
Speaker 2: the middle was always going to be difficult.
Speaker 1: The problem for the US and for China for that matter,
Speaker 1: is at what point do these products that are shipped
Speaker 1: around the world cross over into the realm of national security.
Speaker 1: At what point should the US say we shouldn't ship
Speaker 1: China our most sophisticated chips for AI because those could
Speaker 1: be used for supercomputing in defense applications and those sorts
Speaker 1: of things, and vice versa. China would say we wouldn't
Speaker 1: want the US Defense Department to get a hold of
Speaker 1: our best critical minerals to be used in a military way.
Speaker 1: So the two countries are walking a very fine line
Speaker 1: between national security and economic security, and the line between
Speaker 1: those two is getting blurrier and blurrier by the day.
Speaker 2: How are they trying to balance those concerns and what
Speaker 2: would a deal actually look like that would satisfy each party.
Speaker 1: I think a deal that would allow both countries to
Speaker 1: maintain a certain amount of trade, but not so much
Speaker 1: trade that it impedes the other's ability to accomplish its
Speaker 1: domestic goal. President Trump wants to reshore manufacturing, and one
Speaker 1: way to do that is to put high tariffs on
Speaker 1: Chinese imports and to force some of that production back home.
Speaker 1: China has an interest in exporting what it makes. It's
Speaker 1: still the factory of the world to the rest of
Speaker 1: the world, and if it's not to the US, it
Speaker 1: could be to other countries, to Vietnam or India or
Speaker 1: other places where those products would be welcome if they're
Speaker 1: not welcome in the US anymore. So, their two sides
Speaker 1: seem to be aiming for some sort of a re
Speaker 1: drawn arrangement where they can say, we'll trade with you,
Speaker 1: but only up to a certain point. We'll make sure
Speaker 1: that we diversify where we're getting our imports from or
Speaker 1: exporting two and reduce the dependency on each other. Is
Speaker 1: ultimately what both sides want to do if what we
Speaker 1: are looking at is the battle for global economic supremacy
Speaker 1: over the next decade or two.
Speaker 2: And then there is the last chess piece in these talks,
Speaker 2: the piece that Trump touted as a bargaining chip, on
Speaker 2: the campaign trail and enacted when he took office.
Speaker 1: Tariffs Tariffs are something that you keep on until the
Speaker 1: very last moment of a trade negotiation. They are your
Speaker 1: leverage and you don't give them up at round one
Speaker 1: like we are now. So the tariffs that China bases
Speaker 1: for their products coming into the US are this twenty
Speaker 1: percent based on fentanyl and border security that initially Canada
Speaker 1: and Mexico also we're hit with, and the ten percent
Speaker 1: reciprocal rate that everyone else is dealing with as well,
Speaker 1: and China has brought its tariff of US products down
Speaker 1: to ten percent. So there is a bit of a
Speaker 1: mismatch there, but it's a mismatch that both sides can
Speaker 1: live with for the time being.
Speaker 2: The two sides haven't come to an agreement yet, formal
Speaker 2: or informal, but Brendan says once they do, both countries
Speaker 2: expect to see the results pretty quickly.
Speaker 1: China would want to demonstrate that it's acting in good faith.
Speaker 1: The US said it wasn't after the Geneva agreement, so
Speaker 1: the US will want to see fairly quick action out
Speaker 1: of China, and China will want to see the US
Speaker 1: back off of its threats. Of its own export controls.
Speaker 2: After the break, my Colleaguejan Ha sits down with Bloomberg's
Speaker 2: job Lou to talk about the factors that could be
Speaker 2: shaping China's thinking as the country's representatives sit at the
Speaker 2: negotiating table.
Speaker 4: John, thanks so much for joining us.
Speaker 3: Sure, it's wonderful to be here.
Speaker 4: I really wanted to get your read of the mood
Speaker 4: on the ground in China right now. You know, the
Speaker 4: last time we took a temperature check, people were largely
Speaker 4: supportive of President she standing his ground in these negotiations.
Speaker 3: Has that changed No, I think that remains the fact.
Speaker 3: There's a lot of support, a groundswell. I think I
Speaker 3: would even say that wants China to stand up and
Speaker 3: fight these tariffs. There is a broad view that the
Speaker 3: actions that the Trump administration have taken our prejudice. They're unfair,
Speaker 3: they're unjust. I think what's even added to it has
Speaker 3: been these moves to void student visas. A lot of
Speaker 3: Chinese kids, a lot of Chinese families spent years working
Speaker 3: very hard saving money for the opportunity for that one person,
Speaker 3: one child, to be able to go to an Ivy
Speaker 3: League school and change the course of their lives and
Speaker 3: now they're being denied that possibility, and there is a
Speaker 3: lot of angst about that, and so there's a lot
Speaker 3: of support for she standing up to the Trump administration,
Speaker 3: but at the same time, I think there's also a
Speaker 3: lot of worry. I think the fact that we've seen
Speaker 3: deflation CPI in China be negative for four months in
Speaker 3: a row, I think that speaks to how people are
Speaker 3: trying to save more, spend less, and that is a
Speaker 3: reflection of concern, not feeling a great deal of confidence
Speaker 3: about the future. Exports have been really important for the
Speaker 3: Chinese economy over the last couple of years because consumption.
Speaker 3: Domestic consumption has been so weak, and it's been weak
Speaker 3: because of the collapse of property prices. Households are feeling poor,
Speaker 3: they're spending less, and so exports has really been the
Speaker 3: major driver of growth for China's economy over the last
Speaker 3: two or three years. That has come down substantially. Exports
Speaker 3: from China to the United States fell by thirty four
Speaker 3: point four percent in the month of May.
Speaker 4: That's got to hurt.
Speaker 3: That's the biggest drop since February of twenty twenty. So
Speaker 3: that's at the start of COVID now.
Speaker 4: Before the talks were confirmed, Trump took to his Truth
Speaker 4: social platform last week to post that quote, she is
Speaker 4: very tough and extremely hard to make a deal with.
Speaker 4: He really wanted to get on that phone with President She,
Speaker 4: and it seemed to be a strategic decision for she.
Speaker 4: Was he holding out and what was the message that
Speaker 4: he was trying to send?
Speaker 3: So I would start by saying, we don't know. But
Speaker 3: at the same time, I think there are some things
Speaker 3: about President Jipin deciding to get on the phone with
Speaker 3: President Trump that suggests one there could be more concern
Speaker 3: about the economy from the perspective of the Chinese leadership,
Speaker 3: and maybe that was the additional motivating factor for President
Speaker 3: She to do something that it was unorthodox, that was
Speaker 3: not something that Chinese leaders have done in the past.
Speaker 3: They prefer for any deals to be struck, to be
Speaker 3: negotiated and the details worked out by lower level officials,
Speaker 3: and then President She would come in and sign a
Speaker 3: document put a ribbon on it. That is the preferred
Speaker 3: method of doing business. And so agreeing to the phone
Speaker 3: call suggests that something else is there. It could be
Speaker 3: more concerned about the economy. It could also be that
Speaker 3: potentially the Chinese leadership saw some opportunity, some opening, some
Speaker 3: chance for she to get on the phone and maybe
Speaker 3: get a concession that the lower level officials would not
Speaker 3: have been able to get from the American side.
Speaker 4: Certainly for the US, resuming exports of China's rare earth's
Speaker 4: mineral is really key in these talks, and turning the
Speaker 4: flow of these rare earth exports on and off seems
Speaker 4: to be a big leverage for China right now. Will
Speaker 4: we see China increasingly play hardball on that to get
Speaker 4: the trade deal it wants, certainly from the US, but
Speaker 4: also potentially from other global partners.
Speaker 3: I think China is willing to play hardball, but I
Speaker 3: think there is an understanding in Beijing that the more
Speaker 3: you use the rare earth card, the more it actually
Speaker 3: gets other countries starting to think about, well, I can't
Speaker 3: depend on China for rare earths. I gotta have my
Speaker 3: own minds, I gotta have my own processing. And so
Speaker 3: the more that Beijing uses it, potentially the less powerful
Speaker 3: it becomes. Although the caveat there is you don't build
Speaker 3: rare earth refineries and rare earth minds overnight, so it's
Speaker 3: going to be a period of time.
Speaker 2: On the other side, China is hoping that the US
Speaker 2: doesn't play hardball when it comes to semiconductor chips. But
Speaker 2: if the US is willing to compromise there and ease
Speaker 2: restrictions on semiconductor exports, John says, it could open the
Speaker 2: door to other deals.
Speaker 3: If the Trump administration is going to show that it's
Speaker 3: willing to negotiate on these sanctions, it brings up the
Speaker 3: possibility that the Trump administration might, I'd also be willing
Speaker 3: for the right price to negotiate the other sanctions that
Speaker 3: were put in place by the Biden administration, sanctions that
Speaker 3: are more targeted at more fundamental technologies, and so that
Speaker 3: I think is another important aspect of what happens next.
Speaker 4: Now, you mentioned at the top that these tensions we're
Speaker 4: seeing right now between the US and China, they're not
Speaker 4: only about trade. We've also seen the Trump administration revoke
Speaker 4: Chinese student visas and looking at limiting intrigue to the
Speaker 4: US for Chinese students in critical math, science and tech fields.
Speaker 4: How is all of that contributing to the tone around
Speaker 4: these negotiations.
Speaker 3: So the Chinese leadership is not elected, there are no
Speaker 3: elections but at the same time, the Chinese leadership is
Speaker 3: very sensitive to public opinion. It's maybe even more so
Speaker 3: sensitive because there are no elections, right, they have to
Speaker 3: keep track of how people are feeling. And so when
Speaker 3: you have student visas being canceled and parents being upset
Speaker 3: and that affects entire family, that's something that strikes accord
Speaker 3: with the Chinese government. There is another issue, I think,
Speaker 3: which is Taiwan, and that is the number one issue
Speaker 3: when it comes to the US China relationship if you
Speaker 3: ask anybody in Beijing. And before these most recent talks,
Speaker 3: there was a report by Reuters that the Trump administration
Speaker 3: was planning a very large weapons sale to Taiwan. We
Speaker 3: don't know if that came up during these talks, but
Speaker 3: one thing that Beijing would be very eager for is
Speaker 3: some displayed by the American side of adhering to the
Speaker 3: One China principle, not supporting Taiwanese independence, not supporting the
Speaker 3: current Taiwan administration, which the Chinese side views as being
Speaker 3: extremely pro independence and hostile.
Speaker 4: What do we think China wants beyond the tariff negotiations
Speaker 4: that are happening this week, What more does China want
Speaker 4: out of this.
Speaker 3: I think fundamentally what China wants is space to maneuver
Speaker 3: economically and diplomatic the world. Right now, on a per
Speaker 3: capita basis, the average Chinese citizen is making only about
Speaker 3: a third or a quarter as much as the average
Speaker 3: American person is, so China is still relatively poor. The
Speaker 3: goal of the Chinese government of Xijipin is to move
Speaker 3: China from middle income to high income, and to do that,
Speaker 3: they need technology and they need trade, and so that's
Speaker 3: what they want. They want to have a world in
Speaker 3: which China has access to technology that can fuel its
Speaker 3: economic growth, that can move its standard of living up.
Speaker 3: And they want access to markets so that the goods
Speaker 3: that Chinese companies produce have a place that they can
Speaker 3: be sold into.
Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.
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