Trade War Monitor, May 6: China and U.S. Are Inching Toward Trade Talks

The ongoing trade tensions between China and the United States, which escalated with the initiation of new tariffs a month ago, may be easing as both sides are indicating a willingness to return to negotiations. China’s Ministry of Commerce announced during the Labor Day holiday that it is assessing the potential for renewed tariff talks with Washington. Simultaneously, U.S. President Donald Trump acknowledged in an NBC interview that the current trade war is unsustainable and hinted that tariffs on Chinese imports will eventually be lowered to allow regular business operations between the two countries [para. 1][para. 2].

The heightened tariffs have had a pronounced effect on China’s economy. The expansion of the country’s services sector has slowed, with the Caixin China General Services Business Activity Index dropping to 50.7 in April — its slowest rate of growth since December 2022 and a decline of 1.2 points from the previous month. Optimism within the sector has also waned considerably. Manufacturing activity has similarly suffered; the Caixin China General Manufacturing Purchasing Managers’ Index (PMI) fell to 50.4 in April from 51.2 in March, with foreign demand dropping at its quickest rate since July 2023 [para. 3][para. 29][para. 31].

In response to these challenges, China is actively seeking to diversify its trade partners. The country has ramped up efforts with Europe, exemplified by the launch of a new dedicated e-commerce rail line from the Guangdong-Hong Kong-Macao Greater Bay Area aimed at reducing costs and simplifying logistics to Europe. Trade with Europe rose 1.4% year-on-year in the first quarter to 1.3 trillion yuan. Concurrently, China and Brazil have pledged to deepen economic ties, calling the current situation a “golden window” for increased trade. In 2024, China-Brazil trade reached 1.34 trillion yuan ($184 billion), a 4.6% increase from the previous year [para. 4][para. 22][para. 24][para. 44][para. 47].

Major U.S. companies are also adjusting to the new tariff environment. Apple warned that proposed U.S. tariffs could increase its costs by $900 million in the second quarter, prompting a shift in production for U.S.-bound products to India and Vietnam. In Q1, Apple saw a 2.3% year-on-year revenue decline in Greater China and a 9% drop in smartphone shipments there, resulting in its market share falling to 13.7% and dropping it to fifth place in the Chinese market [para. 6][para. 7][para. 8]. Walmart, after suspending orders from Chinese suppliers due to the tariffs, has now resumed shipments, with the distribution of added tariff costs depending on supplier arrangements [para. 10][para. 11].

Trade tensions have also caused a noticeable reduction in U.S. buyer attendance at China’s 137th Canton Fair, as many American importers began stockpiling goods ahead of anticipated tariff hikes. On the diplomatic front, China’s commerce minister has urged Europe to defend the multilateral trading system, and Foreign Minister Wang Yi has criticized U.S. protectionism while rallying the BRICS nations to oppose such measures [para. 13][para. 14][para. 16][para. 18][para. 20].

The U.S. Senate recently confirmed David Perdue as ambassador to China, who has called for strategic dialogue to ensure fair trade. The International Monetary Fund’s latest forecasts warn of a global economic slowdown, attributing much of the damage to the ongoing trade conflict and the resulting disruption of supply chains and weakened business sentiment [para. 51][para. 53].