US retreats from full-scale trade war with China

Well, that didn’t take long. And there was me thinking that China’s resistance to being bounced into a deal — including the insistence that it was the US that had asked for talks — meant it had settled in for a long haul of negotiations. To be clear: the pact, agreed in suitably neutral Switzerland over the weekend, leaves US tariffs on China ludicrously high and asymmetrically so. But that the US was prepared to make a deal so quickly and reduce duties so much suggests more is to come.

Today’s main piece looks at the deals Trump has agreed so far with China and the UK. I also look at the sorry state of overseas aid and development following the news that Bill Gates will wind down his foundation. And now the first reader question for a while: quite simply, were China and the UK right to accept the deals? Answers please to alan.beattie@ft.com.

Taking the offer or paying the Dane

Trump’s deals with China and the UK have one thing in common, which is — and please sit down if you’re prone to fainting — they’re not binding and they leave a huge amount of negotiation down the line. I know, right? In fact, it’s not 100 per cent clear what they mean now, especially the China deal. As of this newsletter’s “hit send” time, the world’s trade nerds were still pondering over the announcement, trying to work out exactly what had been agreed. The first stab at overall tariffs, including an average for non-China emerging markets and advanced economies, is here, from the consultancy Oxford Economics.

And, of course, they’re subject to crossfire from Trump’s other loose cannons. The other news yesterday was Trump declaring that the US pharmaceutical industry could charge no more in the US than in any other country. Is that on top of the sectoral pharma tariffs he wants? What does it mean for the extensive pharmaceutical trade between the US and both the UK and China? Nobody knows.

Even before that, literally the day after the UK deal was announced, the Trump administration launched yet another so-called Section 232 national security investigation, this time on aircraft, which could end in tariffs. Is the UK pre-exempted from those duties because of the deal? Nobody knows.

In theory the US has left itself quite a lot of leverage. The question is, especially with the threat of financial market turmoil an ever-present, whether it is willing to use it. The UK deal, which explicitly states it is not legally binding, leaves Britain vulnerable to being blackmailed into joint action against China if Washington decrees it. Simon Lester of the International Economic Law and Policy Blog has a great rundown here of the many uncertainties around the pact.

With China, the US’s non-reciprocal “fentanyl tariffs” are still high and asymmetrically so. Beijing has an incentive to come back to the negotiating table and agree a further package of liberalisation — or indeed, as Treasury secretary Scott Bessent said on Sunday, agree to purchase more US exports.

This puts us straight back into the territory of the “phase 1” deal of Trump’s first presidency, in which China supposedly agreed a bunch of liberalising measures. The then US trade representative Robert Lighthizer made a big deal out of these, but they haven’t exactly stopped the US moaning about Chinese state capitalism. Beijing also agreed to buy a load of US soyabeans and other products, which it did not.

Still, if there’s one thing we apparently know, it’s that the US is heading towards negotiating the tariffs down (though it seems to regard the 10 per cent baseline as inviolable). This will set it up for a nice old confrontation with perhaps Trump’s foremost target of ire, the EU, which has continued to insist the 10 per cent minimum is unacceptable.

Partly what happens now will depend on which of Trump’s team has the president’s ear on any given day, given their wildly contrasting views. In the endless game of Trade Official Tombola, you never know who’s going to be rattling round the Oval Office leading policy when decisions come to be made.

If it’s China warrior supreme Peter Navarro, the UK might find itself being led into a trade war and Beijing being denied more tariff cuts. If it’s commerce secretary Howard Lutnick, whose job seems to be to find out what Trump wants that day and cheerlead it, probably less so. Navarro clearly didn’t have much to do with the UK deal, since he was subsequently talking about the UK accepting beef and chicken produced to US hygiene standards, something Sir Keir Starmer’s government wisely refused to accept.

Remember the rules?

Finally, what does this mean for the rules-based world trading system? It’s not great that the US is agreeing bilateral deals all over the place. As I wrote last week, the UK pact is more directly damaging, since it involves violating the “most-favoured nation” principle by granting market access to the US it will not give to other countries.

The metaphor that immediately came to mind was Dane-geld, the protection money that Anglo-Saxon kings paid to Vikings in return for easing off the pillaging for a while.

Rudyard Kipling famously had a downer on this tactic, contending that “we’ve proved it again and again, that if once you have paid him the Dane-geld, you never get rid of the Dane”. (My favourite feedback to my piece on this came from an actual mediaevalist historian, who argues that paying Dane-geld was an entirely sensible thing to do.)

The UK will need to keep scanning the horizon for signs of the striped Viking sails appearing again. It might turn out to be worth the gamble and the violation of MFN, or it might not. China might have hit on a better strategy (admittedly in a very different position), or might have not. Nobody knows anything.

Musk’s barbarians at the Gates

Bill Gates has revealed that he’s going to be accelerating spending and then closing the Gates Foundation, albeit not for 20 years. It’s a poignant moment. Trump’s (and specifically Elon Musk’s) savaging of US development assistance, including the US Agency for International Development (USAID) and the US programme for HIV-Aids relief, has left the sector gasping for air. Gates (correctly) last week said that Musk was killing children. By running down his fund, Gates hopes to ameliorate the impact of official aid cuts.

The traditional aid donors are turning away. The UK, which has already made a mockery of its aid budget by spending a chunk of the money on housing asylum seekers in Britain, has announced it will cut its spending yet further from 0.5 per cent to 0.3 per cent of gross national income. Former Labour prime ministers Tony Blair and Gordon Brown, who used to fall over each other competing to announce more aid, seem to have been silent on seeing their work undone, even though Brown had picked a public fight with Musk over the US’s aid cuts just weeks earlier. Not for the first time, Brown’s commitment to courage is stronger in theory than practice.

There’s no doubt the Gates Foundation did a tonne of good. (Disclosure: the FT has received money from Gates in the past.) In particular, being able to work with a longer time horizon than donor governments — which were under pressure to show results within a few years — enabled it to fund programmes such as the elimination of polio, which is slow and unspectacular work.

But it took strong policy and ideological stances, a tactic that sat oddly with its philanthropic mission. The foundation publicly opposed the granting of a waiver on Covid-19 vaccines during the pandemic before reversing course, a highly contentious public policy issue to weigh in on.

More generally, the idea of private giving saving the world — remember the “philanthrocapitalism” of two decades ago? — now looks seriously naive. The new generation of tech crypto billionaires were seduced by the quasi-scientific approach of effective altruism, which has come under heavy and deserved criticism. The development sector is full of fear. There are stories of NGOs and think-tanks pulling controversial-sounding research papers or cutting the word “equity” from the title. It turns out it is a lot less independent of the state and governments than it thought.

Charted waters

Customs revenue is rising at US ports, but by nowhere near enough to replace a significant portion of receipts from the federal income tax as Trump wishes.

Trade links

• Chinese companies are purging their supply chains of foreign components, in case Trump’s trade war turns into a full-scale decoupling of its economy from the US’s.

• Chinese exports jumped in April as its shipping companies pushed goods through ahead of trade talks and tariffs being imposed.

• Speaking of which, Wired magazine looks at whether consumers should buy now to beat the tariffs or wait.

• Treasury secretary Scott Bessent has been sent out to try to calm nervy investors. However, they are unlikely to have been reassured that the administration is on top of things by Stephen Miran, the chair of Trump’s Council of Economic Advisers, echoing Trump (before the deal with China) that the US doesn’t need a trade deal with China.

• My FT colleague Martin Sandbu reminds us that a tax on imports is a tax on exports and will hit US companies selling abroad.

Trade Secrets is edited by Harvey Nriapia