So the big meeting between presidents Donald Trump and Xi Jinping didn’t produce a whole lot on the day, as I suspected. Since the last face-off in October, the two have shifted from frontal tariff assault to hand-to-hand supply chain skirmishes. Moreover, they are promising mechanisms of trade and investment co-operation that could deliver partial truces, depending on political will.

Today I look at those promises, plus the China trade conflict that’s heating up rather than cooling down: the one with Europe. Charted Waters, which explores the data behind world trade, is on the US and other economies.

You get the feeling that the main reason to go ahead with last week’s summit was because, having already pushed it back from March, it would have looked embarrassing to postpone it again. Not much happened, but Trump and Xi are set to have at least one and perhaps more additional meetings this year.

In any case, it seems pretty clear that Xi is determining the pace, after having tamed Trump’s aggression last year. The fact that the US president was accompanied to China by a delegation of chief executives — if that’s the word (phalanx? fraternity? brute squad?) — also gave the sense of a relationship being normalised and regularised.

Both sides can continue that normalisation by extending and strengthening the gradual mutual disarmament that has been happening since the autumn. Undo more of last year’s tariff increases, formalise and extend China’s restraints on rare earth export controls, regularise US permits for chip exports so they’re trusted by both sides. These would be good things.

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I’m much less keen on where both parties seem to want to go thereafter. That is, towards managing trade flows and investment through targets, procurement and centrally directed investment agreements. Over the weekend, the US claimed some rather unimpressive downpayments in the form of promised purchases of Boeing aircraft (if anything, fewer than had been expected), plus some supposed Chinese pledges of agricultural procurement. If you’re going to take the latter at face value given what happened previously, I’ve got some magic soyabeans to sell you.

Mechanisms for a more systematic form of managed trade are being put in place. The meeting announced a framework in the form of a “board of trade” and “board of investment” to facilitate co-operation. According to Chinese foreign minister Wang Yi in the official Xinhua write-up:

It would be notable if they went beyond agriculture to include various parts of manufacturing such as autos, in line with Trump’s intermittent desire to allow Chinese car companies to produce in the US. But expanding managed trade would not be a good development, at least not compared with actual open trade. It would instead mean China as well as the US further abandoning the multilateral system.

As Simon Evenett from Global Trade Alert pointed out last week, this idea has a 1980s retro vibe, recalling former US president Ronald Reagan’s series of managed trade agreements with Japan on autos, semiconductors, textiles and so on. They were not good deals, at least for their own sake. Evenett rightly says they raised US consumer prices, redistributed profits to Japanese companies, had little impact on trade imbalances and damaged downstream industries.

If Trump tries to imitate Reagan’s strategy, the outcome will probably be even worse. For one, it’s hard to imagine Trump’s pacts enduring or being designed well. Whatever you think of his policies, Reagan ran a somewhat serious administration, staffed by grown-ups on the trade and economics side to whom he delegated power to negotiate and implement complex agreements. Trump has an extremely short attention span, an incoherent world view and the likes of senior trade and manufacturing counsellor Peter Navarro and commerce secretary Howard Lutnick still kicking round the place. In terms of strategy and tactics, Xi will run rings round Trump. And if at some point Trump realises that, the whole game could be up and we’ll be back to all-out trade war.

It is also notable that Reagan’s protectionism at an industry level was followed by a renewed push on liberalisation at the macro level, especially with the Uruguay round that ended up creating the World Trade Organization. Former US president Richard Nixon had a similar arc, the aggressive economic nationalism of his early years giving way to a multilateral push for trade deals in the Tokyo round. Reagan fans claim the managed trade bit created political space for the multilateralism bit. I don’t have a view on this, though it’s an arguable thesis. In any case, Trump is exceedingly unlikely to go down that route. His version of managed trade doesn’t open up space for trade policy anywhere but deeper into a protectionist mire. 

That the US and China aren’t escalating a tariff war with each other is indisputably good, though not new. It was obvious to me even before the October meeting that their trade war had entered its cold phase. But the path they’re choosing out of it is neither reliable nor efficient.

Meanwhile, China and the EU are at the escalatory stage. To recap: there’s been growing concern in Brussels about the second China shock. Even traditionally pro-China Germany is contemplating the competitive impact of Chinese imports on towns that are home to Mittelstand car-component manufacturers. Attempts to manage those imports through carefully calibrated anti-subsidy tariffs are widely considered to have failed.

The European Commission and some member states are also concerned about Chinese and other companies jumping the tariff walls by setting up in the EU, undercutting domestic companies with subsidised operations, bringing in cheap Chinese labour and ignoring environmental concerns. Accordingly, the Commission has brought out one of its newish trade weapons: the foreign subsidies regulation (FSR), which has a better claim to be called a “bazooka” than the anti-coercion instrument (ACI) that generally gets that title. I’ve described the FSR down the years here, here and here.

The heat is rapidly being turned up. In April 2024, the EU started a preliminary FSR investigation into Nuctech, a Chinese company that makes scanners. The investigation involved well-publicised dawn raids on Nuctech’s offices in 2024 and was escalated into a full probe in December.

Last week Beijing went to the fairly dramatic length of publicly ordering Chinese entities not to co-operate with the investigation, citing new economic security powers it introduced last month and saying the probe involves an illegitimate assertion of extraterritorial powers. The Commission said oh no it doesn’t, a rebuttal I fear will not impress Beijing.

The EU is gearing up for a big review of what powers it has against unfair Chinese competition and investment practices. (I’ll be writing more on this later in the week.) But the question has always been about political consensus and heft as much as technical ability. The FSR is going to be a pretty good test of that. 

It’s always worth remembering the US isn’t a very open economy so can run destructive trade policy without trashing overall growth. Former president Joe Biden’s trade policy wasn’t all that great. But even the sharp deterioration under Trump hasn’t undone US outperformance since the end of the Covid-19 pandemic.

• Shipping lines have opened up land cargo routes into and out of ports on the Gulf, though at large expense and with a fraction of the capacity of the vessels that used to transit the Strait of Hormuz.

• Australia’s mining companies are doing their bit to globalise the renminbi by using it for financing and settlements.

• Harvard academic Dani Rodrik explains why he’s modified his famous and longstanding view about the central importance of manufacturing in generating productivity growth in developing countries.

• Evidence of China’s redirection of foreign direct investment out of advanced economies and into low- and middle-income countries: Brazil was the number one recipient of Chinese investment last year.

• The Trump administration is preparing what health experts say is the final blow against the Pepfar treatment programme, which is estimated to have saved the lives of 26mn people living with HIV/Aids.

Trade Secrets is edited by Harvey Nriapia