China-U.S. economic and trade consultations: From emergency management and control to normalized mechanism coexistence

China News Service, Beijing, September 30. In recent years, certain economies have used so-called "reciprocal tariffs" as a routine tool for unilateral pressure. Uncertainty in global trade policies has increased accordingly, and adjustments to industrial and supply chains have also been accelerated. However, economic analysis has long shown that most of the additional costs generated by tariffs are not borne by the exporting country, but are absorbed by consumers and downstream companies in the taxing country. Protectionism has not really benefited the pressurers. The deeper cost of economic and trade frictions is that risks caused by policy uncertainty will impact companies' orders and investment decisions, which not only inhibits current trade but also hinders long-term capital formation. The stability of the hundreds of billions of dollars of trade and tens of billions of dollars of two-way capital flows between China and the United States not only affects the balance sheets of companies in the two countries, but is also a benchmark variable for the division of labor and capital flows in the global industrial chain.

The eighth round of China-US economic and trade consultations was successfully held in New York and Washington from September 20 to 23. When interpreting the results of this round of consultations, the head of the Department of American and Oceanian Affairs of the Ministry of Commerce said that the two sides reached ten results, including the Trade Council, the Investment Council, the "30 billion to 30 billion" reciprocal tax reduction, the agricultural working group, the artificial intelligence dialogue, the extension of the Kuala Lumpur Economic and Trade Consultation Joint Arrangement, etc. The relevant results will be promoted for implementation. One judgment is gradually becoming clear: China-US economic and trade relations are shifting from emergency management and control to normalized institutional coexistence, and the certainty of institutionalization is reshaping the underlying logic of this relationship.

Reciprocal tax cuts bring economic and trade issues back to economic logic

The “30 billion to 30 billion” reciprocal tax reduction arrangement is the most substantive trade outcome of this round of negotiations. The two sides agreed to reduce tariffs on approximately US$30 billion of each other's imported products in a reciprocal manner, of which the tariffs on about 90% of the products will be reduced to the most-favored-nation rate. The scale is generally agreed based on the bilateral trade volume in 2024. The US list focuses on goods imported from China such as toys, home appliances, baby products, kitchen and bathroom supplies, holiday gifts, etc. The Chinese list covers agricultural products, personal care products, medical equipment, coal and other goods imported from the US. The product selection structure of the list is worth reading carefully.

First, tax cuts directly affect terminal prices and people's livelihood welfare. The U.S. list mainly focuses on consumer goods with high price elasticity of demand and high import dependence. Tariff callbacks can be quickly transmitted to retail prices and increase household purchasing power. The effect of curbing inflation and benefiting people's livelihood is immediate. Empirical research has also found that most of the tax burden of previously imposed tariffs has been borne by U.S. importers and consumers. China's list takes into account both supply security and consumption upgrading, and the inclusion of coal in the framework is more signaling. It provides multi-year stable expectations for coal imports from the United States in 2027 and 2028, transforming energy trade from a volatile item to a stable item.

Second, the benefits go beyond improving consumer welfare. Behind categories such as toys, home appliances, holiday gifts, etc. are the huge export manufacturing clusters and employment chains in the Yangtze River Delta and Pearl River Delta. The rebound in orders means a rebound in production capacity utilization. The replenishment of inventory by US buyers will also drive the prosperity of shipping, ports and other service chains. Every percentage point reduction in the tariff rate will create real order space and profit margins for companies.

Thirdly, the rule meaning of the word "equivalence" is more important than the number itself. Unilateral concessions cannot pass the sustainability test of each country's domestic politics. Only a reciprocal structure of mutual respect and equal consultation can the results of cooperation be dynamically consistent. China and the United States have replaced reciprocity on the tariff wall with reciprocity on the negotiating table, providing another paradigm for dealing with tariff differences between major powers. Although the scale is limited, once the rhythm of talking while lowering and lowering to promote talks is established, tariffs will be transformed from a tool of confrontation back into a negotiable economic issue.

Mechanism construction is turning uncertainty into certainty

If tax cuts address current costs, mechanism construction focuses on stabilizing market expectations, and the latter has higher long-term value. The function of the system is to reduce transaction costs and stabilize the expectations of all parties. The progress in this round of consultations at the institutional level is particularly valuable.

The Trade Council has the main task of optimizing bilateral trade and has an agricultural working group, which is jointly led by the Ministry of Commerce of China and the Office of the United States Trade Representative. It will hold its first meeting within the year; the Investment Council has established an institutionalized communication platform to conduct regular dialogue around investment opportunities and investment obstacles; Artificial Intelligence The energy dialogue was directly promoted by the leaders of the two countries, Vice Prime Minister He Lifeng and Finance Minister Bessant, and a communication channel for artificial intelligence events was established; the Kuala Lumpur Economic and Trade Consultation Joint Arrangement was extended to January 10, 2027, with a combination of limited extension and continued active discussions, leaving room for subsequent negotiations. The common direction of these arrangements is to transform Sino-US economic and trade interaction from a case-by-case bargaining to a normal operation of a platform plus a list.

Among them, the artificial intelligence dialogue mechanism is particularly forward-looking. On issues such as technical standards, security governance, and cross-border data flows, the vacuum of rules itself is the biggest commercial risk. The two technology source countries took the lead in establishing notification and communication channels, which is equivalent to providing stable expectations at the infrastructure level for global digital trade.

Judging from the trajectory of the eight rounds of consultations since last year, Sino-US economic and trade communication is gradually moving from fire-fighting contacts in times of crisis to a normalized, professional, and multi-level governance structure. It is impossible to expect a comprehensive solution to the structural issues between the two countries in one negotiation. Only by carrying out differences on an institutionalized track and accumulating mutual trust through rolling dialogue can the results of cooperation not be wiped out due to fluctuations in one incident or another. The mechanism itself is the container of trust. The eight-point outcome consensus proposes to build a constructive strategic and stable relationship between China and the United States based on respect, fairness, and reciprocity. The economic and trade consultation mechanism is the first institutional cornerstone.

Investment Council injects rare new vitality into cross-border capital flows

If the tax reduction arrangement optimizes trade flows, the Investment Council focuses on longer-term capital ties. At present, global cross-border direct investment continues to be sluggish, and competition among countries in industrial policies has intensified. Cross-border investors are highly sensitive to the policy environment, far more than they care about the return of a single project. The Investment Council responds to investment opportunities and investment obstacles through regular dialogue, and improves policy transparency and predictability on the premise of complying with the respective legal and regulatory requirements of the two countries. It precisely responds to the soft environment demands that are most valued by multinational investors and injects rare vitality into cross-border capital flows.

The principled consensus in the financial services field also sends positive signals. China will review and approve applications from financial institutions from various countries, including U.S.-funded institutions, to operate and establish branches in China in accordance with laws and regulations. We also hope that the United States will provide a fair, transparent, and stable policy environment for Chinese-funded financial institutions. Openness should be two-way. In recent years, China has independently expanded the opening up of its financial industry, which has truly benefited global financial institutions, including U.S. capital. Shaping this opening into a positive interaction rather than a one-way export is what the Investment Council is worth looking forward to. For multinational capital, credible rules and stable expectations are far more capable of changing long-term layout than one-time project concessions.

Certainty between China and the United States is becoming a public good for the world economy

Putting this round of consultations in a larger global context, its significance goes beyond the bilateral scope. The current multilateral trading system is facing the continued impact of unilateralism and protectionism, and the reform of the World Trade Organization is struggling. The business community generally reflects that the biggest risk is not market fluctuations, but the inability to plan. Against this background, the extension of the Kuala Lumpur Joint Arrangement has provided a valuable policy buffer period for enterprises of the two countries. The increase in direct flight communication has continued to strengthen the link between logistics and logistics. The two sides have reaffirmed their commitment to implement the consensus reached during previous consultations and provided a guarantee.

It is also important to note that intermediate goods trade accounts for more than half of global trade. The tax reduction arrangements between China and the United States will be transmitted along the value chain to enterprises in Southeast Asia, Europe, and Latin America. The dividends from the expansion of the cooperation list will also spill out along the same chain. Stability is not a country's private interest, but a public good that can be shared. The eight-point consensus on mutual support for each other's commitment to successfully host the APEC Leaders' Informal Meeting and the G20 Summit means that coordination and cooperation are extending to multilateral frameworks. For the business community, the Trade Council means more stable order expectations; for consumers, the tax reduction list directly translates into better commodity prices and richer consumer choices; for investors, two-way investment in green and low-carbon, medical and health, digital economy and other fields will gain new space.

Of course, while affirming the results, you must also stay awake. The structural differences between China and the United States in economic and trade have not disappeared. There has been no breakthrough in the export control of advanced artificial intelligence chips. Many arrangements still need to be implemented simultaneously in accordance with the respective domestic laws and procedures. Negotiations are still on the way. Implementation is more important than promises, and actions are more convincing than words.

The essence of Sino-US economic and trade relations is mutual benefit and win-win, which is determined by the deep complementarity of the two countries' economic structures, the huge magnetism of the market size and the deep nesting of the global value chain, and will not change due to temporary setbacks. Institutionalized certainty is one of the scarcest public goods in today's world economy. The accumulation of this certainty is not in grand announcements, but in the consultations held as scheduled, the tax reduction arrangements implemented one by one, and the mechanisms that continue to operate. Steady progress can lead to long-term success. As long as both sides work toward each other, China-US economic and trade cooperation can overcome cyclical fluctuations and provide more certainty and positive energy to the two peoples and the world economy.