US Wobbles Ahead Of China Trade Talks In Geneva

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China, for example, has not shied away from publicly calling Trump out for misstatements about communications between Washington and Beijing. Trump claimed to receive phone calls from Xi that Beijing says didn't happen. Bessent , under oath in a Congressional hearing, had to refute Trump's claims that the US and China were already conducting negotiations.

It means that the first thing Trump conceded in these talks is basic trust. If you are the leaders of Japan, Singapore, South Korea or Taiwan, awaiting their turn in Carney's shoes in the Oval Office, you're going into US negotiations with great skepticism.

From Trump 1.0, world leaders learned that Trump trade talks aren't negotiations so much as moments to extort allies and foes alike.

For Xi's part, China will go in pledging to do what the Communist Party has been attempting for years: step up domestic consumption. The challenge for He is making the case that China shifting away from exports to a domestic demand-led model is a win-win for the global economy.

More Chinese demand for Apple's phones, Nike's shoes, Ford's cars, Hasbro's toys, General Electric's appliances and Hollywood's entertainment is great for the US economy.

But, as He must try to explain, Trump's tariff actions will only reduce the wherewithal of 1.4 billion to buy overseas goods. The same goes for China's ability to switch economic engines in mid-flight, a huge challenge even in the most stable of environments.

Chinese deflation also should have a prominent place on Bessent's mental pros and cons list. In using tariffs to bring China to the table, Trump World risks tipping Asia's biggest economy into a falling-price cycle.

Thankfully, China's experience with deflation has been mild relative to Japan's in the 1990s. But this weekend, as Bessent and He size each other up, Beijing is scheduled to release data showing factory-gate prices are now down 31 consecutive months. And that consumer prices fell for a third straight month.

Exacerbating China's deflation risks in 2025 is not in America's economic interest. Nor that of the broader Group of Seven nations.“If the US wants to resolve the issue through negotiation, it must face the serious negative impact of unilateral tariff measures on itself and the world,” warns China's commerce ministry.

There's an argument, too, that Trump needs a trade deal more than Xi. Arguably, the only way Trump can live down anger among American households over tariffs - to have even a fleeting chance to argue the end justifies the means – is striking a China deal. Xi's party, meanwhile, doesn't have to contest mid-term elections in late 2026.

Trump also blinked first, remember. He backtracked on“reciprocal” tariffs with most countries rather quickly. Trump has offered carve-outs for more companies, including Apple, and industries than economists can count.

Greer, himself, has warned that a trade deal that gets watered down can be “Swiss cheese in action” and“undermine” the impact. Trump 2.0 is doing just that in real time.

Also, Chinese trade data released Friday could give He something of a spring in his step arriving in Geneva. Though exports to the US dropped a precipitous 21% in April year on year, overall shipments managed to rise a greater-than-expected 8.1%. It was a clear sign that Chinese companies are succeeding in efforts to increase sales in other markets to compensate for falling US sales.

Bessent's team at the US Treasury is also paying very close attention to Beijing's currency reserve holdings. Last week, Japan's Finance Minister Katsunobu Kato made waves in markets by saying Tokyo's US$1.1 trillion of US Treasury holdings“does exist as a card” to play in trade talks.

This has US officials worried China might be even more inclined to use its own US$760 billion as leverage versus Trump World. The shockwaves that any move to dump Treasuries would cause everywhere have Asia on edge.

“We suspect these dollar hoardings by Asian exporters and institutional investors may be extremely large – possibly on the order of $2.5 trillion or so – and pose sharp downside risks to the dollar vis-à-vis these Asian currencies,” Eurizon SLJ Capital economists Stephen Jen and Joana Freire write in a note.

Only Xi knows if Beijing would take things that far. But the ways in which Trump has conducted himself vis-à-vis China have enabled Xi to rally the support of many average Chinese.“We believe Beijing views these US trade actions as nothing short of a declaration of economic war ,” BCA Research analysts argue in a note.

That could buy Xi a lot of goodwill with the Chinese masses. Yet, wildcards abound. Over the last six months, the Freedom House's China Dissent Monitor has detected statistically significant increases in in-person protest activity. Grievances, often over unpaid wages, are reportedly bubbling up in factories around the nation.

Nomura Holdings economists warn that Trump's tariffs could erase as many as 15.8 million mainland jobs. Goldman Sachs says makers of apparel, communications equipment and chemical products are uniquely vulnerable. Goldman says that as many as 20 million mainland jobs are directly dependent on US-bound shipments.

The market chaos is hitting developing economies everywhere.“Portfolio flows to emerging markets came to a standstill in April, with the first month of the second quarter marked by the sharpest regime shift in trade policy in over a decade,” says Jonathan Fortun, economist at the Institute of International Economics.