On Thursday, U.S. President Donald Trump met with Chinese President Xi Jinping in South Korea for a summit deemed historic, during which they outlined an initial framework for a forthcoming trade agreement. Despite significant media coverage, analysts believe that the unprecedented trade war initiated by Trump has clearly harmed both the U.S. and Chinese economies, and this agreement is unlikely to bring substantial changes to either economy, as reported by CNN.
At first glance, the headlines suggest a dual victory; the U.S. plans to reduce tariffs on Chinese imports by 10%, effectively lowering the rate to about 47%, while China will postpone restrictions on rare earth metal exports and increase its purchases of U.S. soybeans.
While these measures may temporarily alleviate some pain for businesses and consumers since Trump resumed office, the wounds in both economies run deeper than can be healed quickly.
Delayed Agreement
This agreement arrives late, particularly for American farmers, especially soybean producers, who have suffered from China’s ban implemented in May as tariffs increased.
As recently as this week, China had not purchased any shipments of U.S. soybeans, which represent the largest segment of U.S. agricultural exports. Although Trump has claimed that Beijing will buy “huge quantities,” the harvest season is at its peak, forcing farmers to sell their crops at already low prices.
Moreover, Trump inherited a labor market from his predecessor, Biden, that was showing signs of slowdown, with recent data indicating a significant drop in employment over the past months.
Adding to the difficulties, aggressive and unpredictable tariff policies have made companies more cautious about hiring, and some have begun mass layoffs. For the first time in years, the number of unemployed individuals exceeds the number of job openings, according to the U.S. Bureau of Labor Statistics.
Tech Taxation
The challenges do not stop there; advancements in artificial intelligence have led to widespread job cuts, exemplified by layoffs at Amazon. Federal Reserve officials suggest that lowering interest rates may no longer be an effective tool for supporting employment if structural changes in labor demand are driven by AI taking over many positions. Federal Reserve Board member Christopher Waller stated, “If AI constitutes a structural shift in the labor market, monetary policy will not be an effective tool.”
While low interest rates raise concerns about inflation, the costs of goods and services are already increasing due to stringent tariffs and immigration policies that have diminished the labor force in agriculture and childcare.
Cocktail of Crises
The situation in China appears no better. Though its exports have shown resilience against U.S. tariffs, chronic domestic issues continue to exert significant pressure on its economy, including a real estate slump, contraction, declining consumer confidence, and rising youth unemployment.
Louise Liu, head of Asian economics at Oxford Economics, comments that the new adjustments in the agreement “will not create a structural impact in the long term, as reducing tariffs on fentanyl-related products may add at most 0.2% to Chinese growth next year.”
Recent data reveal that producer prices in China have fallen for the thirty-sixth consecutive month as of September, retail sales growth has slowed to its lowest level in ten months (3%), and new housing prices have decreased at the fastest rate in eleven months.
Experts highlight that escalating overproduction in the electric vehicle sector and aggressive pricing strategies among companies are worsening the crisis in the domestic market.
Deepening Crisis
So far, what Trump and Xi have achieved is merely a draft of an agreement that has yet to be signed. Further negotiation rounds are anticipated to finalize the terms before any official signing – or the agreement could potentially collapse altogether.
Nevertheless, observers note that the mere announcement of the agreement temporarily alleviated the threat of Trump imposing additional tariffs of 100% on Chinese exports, a move that would have provoked a severe retaliatory response from China.
The potential deal between Trump and Xi appears more of a political balm than an economic remedy; both nations face structural problems—America grapples with a weak labor market and declining investment confidence, while China experiences a real estate slump and eroding consumer trust.
Even if some tariffs are lifted or agricultural markets are opened, the crisis transcends the trade conflict—this is a crisis rooted in the economic models of both nations; one contends with aging and technology, while the other struggles with stagnation and bureaucracy.