How Trump could deal with the dragon in the room

There is an elephant, or a dragon, in the room as American officials negotiate with more than 75 countries seeking to reduce US tariffs. Treasury Secretary Scott Bessent has suggested the United States could reach deals with close partners and then “approach China as a group.” 

Whether isolating Beijing has emerged as the primary goal or just one of several competing objectives for US officials is unclear. 

Bessent reportedly pitched the China approach to President Donald Trump on April 6, four days after “reciprocal” tariffs were announced. Trump has also claimed that tariffs will reduce bilateral trade deficits, revitalize American manufacturing, and even lower taxes. 

Chinese officials are taking the threat seriously. “China firmly opposes any party reaching a deal at the expense of China’s interests,” China’s Ministry of Commerce said, adding: 

If this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner. 

Maximize pressure

The rest of the world is ducking to avoid the crossfire. Japanese officials are hesitant to maximize pressure on China, according to recent reports. 

Mexico, which depends on the United States for more than 80% of its exports, is an outlier and has been willing to consider matching American tariffs on Beijing. 

But given that China is the largest trading partner to more than 120 countries, American officials will need to offer more than sticks to build an effective coalition. 

An even bigger question is whether isolating China is a temporary diplomatic objective or a longer-term economic objective. In other words, is the goal to increase collective pressure and strike a deal with China, or more fundamentally, to reduce dependence on Beijing? 

Realistically, a strategy to reduce dependence on China would need to extend beyond the 90-day suspension of “reciprocal” tariffs. Key issues such as updating rules of origin, boosting investment screening, and developing new supply sources, are multiyear efforts. 

Progress will require legislative changes, regulatory reforms, and public-private partnerships. Supply chains do not move in months. 

To set the table for longer term efforts, however, American officials could prioritize three areas in their trade talks. 

First, they could focus on strengthening the enforcement of existing agreements by reducing the ability of companies to illegally transship Chinese goods through third countries and circumvent US export controls. 

These issues are especially important to prioritize in talks with “connector countries” such as Mexico, Indonesia, and Vietnam as well as hubs such as Malaysia, Singapore, and Turkey that have been used to circumvent export controls. 

Partner countries

Countries could offer to devote more resources to monitoring, raise penalties, and improve information sharing.  

While perfect enforcement is impossible, progress could also shift the dynamic with US trading partners from combative to cooperative. Better information sharing could provide earlier warnings of Chinese goods being dumped. 

Washington could also offer capacity-building support, including access to supply chain technology from American firms, to help partners track goods and prevent illegal activities. 

At the same time, partner countries could assure their Chinese counterparts that they are simply upholding existing rules. 

Second, they could attract investment toward strategically important sectors which would help reduce dependencies on China. 

This would require prioritizing areas of vulnerability such as critical minerals, semiconductors, and ship building over other sectors where the United States has ample access to reliable sources such as energy and agriculture. 

The results of those investments would take time, and much more capital would be needed, but announcements could help provide momentum and positive signals to the market. 

Third, and most importantly, removing US reciprocal tariffs is itself the strongest near-term opportunity to counter China. In recent years, a growing number of multinational companies have pursued “China+1” strategies.

Removing them and providing targeted exemptions to current and upcoming 232 tariffs would help encourage this longer-term shift. 

Collectively, these steps involve moving some operations out of the world’s second-largest economy and into markets such as India, Indonesia and Vietnam, which now face tariffs of 26%, 32%, and 46% respectively. 

Bilateral talks

This would help American negotiators secure meaningful wins and set the table for longer-term discussions 

Moving beyond today’s bilateral talks, US officials should consider broader approaches to update and align rules across several key markets. It takes two to trade, but derisking from China will require a coalition.

Jonathan E Hillman is a senior fellow for geoeconomics at the Council on Foreign Relations.

This edited article was published by the Council on Foreign Relations under a Creative Commons license. Read the original here. 

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy of China Factor.