Are we headed toward a US-China trade showdown?

Jessie Yin:

One of the inspirations for inviting you on today was last week’s edition of your Wall Street Journal China newsletter. Ahead of the Trump-Xi summit, we’ve been thinking about what the US administration’s next move could be in trade negotiations with China. In the newsletter, you wrote that “after the drama of sweeping tariffs last year, Washington’s trade strategy toward Asia is shifting to something more surgical.” Can you break down for our listeners what that means

Lingling Wei:

To answer that, I’d like to start with a moment that has really stuck with me. A few weeks ago, I was at an event in New York full of trade professionals from Southeast Asia that Wendy Cutler was hosting. She’s a veteran US trade negotiator who is now at the Asia Society Policy Institute.

In the middle of our conversation, somebody said three words: “rules of origin.” And then there was this collective, audible gasp. You could really feel it move through the room. That reaction told me everything, because these people were not pundits. They were the people who would actually have to implement whatever Washington and Beijing decide next. And they understood that this technical phrase—“rules of origin”—is about to become one of the most consequential issues in the US-China trade relationship.

The next battleground, based on my reporting and conversations with trade professionals from Southeast Asia, will center on this very technical and dry mechanism. The phrase itself sounds like half the problem. It’s difficult for people to understand. Really, it’s bureaucratic shorthand for a deceptively simple question: Where is this product actually from? That sounds easy, but it isn’t.

Last year, the US administration floated something quite dramatic: a 40 percent tariff on transshipped goods. The idea was that if a Chinese product gets routed through, say, Vietnam, it receives a new label saying “Made in Vietnam,” and when it then shows up on a shelf in Washington, it gets slapped with a punitive tariff as high as 40 percent. But according to Wendy, that approach proved too complex. Her exact phrase—which I love—was that the administration seemed to have “Biden off” more than it could chew.

Many of last year’s trade agreements—with Malaysia, Indonesia, and others in Southeast Asia—ended with placeholders for future rules-of-origin negotiations. That’s why we’re saying the focus is shifting to something more surgical: capping how much Chinese content can be included in a finished product while still qualifying for lower US tariff rates. One version would be a blanket cap—for instance, requiring that no more than 10 percent of a product’s value originate in China. Another version would be more targeted, focusing on the highest-value processing rather than just final assembly.

Josh Lipsky:

That is extraordinarily helpful and clear. And you say “surgical,” but I think it’s helpful for our listeners to understand what a typical product from Vietnam, Malaysia, or Indonesia might contain in terms of Chinese-origin content at this point. Because even though it’s surgical, it would still be a shock to global supply chains to bring that down to ten percent.

Lingling Wei:

Absolutely. It’s still pretty ambitious on the part of the United States, if that is indeed the route the administration decides to take. Let’s picture a factory owner in Penang, Malaysia. He’s built his business over twenty years on Chinese subassemblies and Chinese capital—and he exports his products to the United States. Then he gets a letter saying: prove that less than ten percent of the value of every product crossing into the United States originates in China, and prove it for every single shipment with auditable documentation. At that point, he has three options, right? He can re-source, which could be very expensive and slow, and the alternatives may not be as good. He can downgrade, meaning he accepts higher US tariffs, and hopes the math still works for his business. Or he can quietly exit the US market. The question is how many companies would choose option number three. That’s a big question for Washington.

Jessie Yin:

What does this mean for the US economy? And what would the downsides of this approach be compared with the idea of transshipment tariffs?

Lingling Wei:

It’s still too early to make detailed predictions about the economic impact because this is not yet happening. The gears are in motion, and the administration has clearly indicated a desire to push countries to strip Chinese content out of their supply chains. But at the same time, China is putting pressure on those countries from the opposite direction. So we’ll have to see how the negotiations pan out.

When we think about the US-China relationship, we often think only about Washington and Beijing. But if these rules-of-origin negotiations move forward later this year, next year, or the year after that, we could see a scenario in which the center of gravity in this story is no longer just Washington and Beijing. It’s the third capitals: Hanoi, Jakarta, Kuala Lumpur, New Delhi, and increasingly Mexico City. There is a scenario in which the US-China relationship ends up being defined in practice by how those countries respond to pressure from both sides—whether they choose a side, hedge, or quietly invent some third option.

Josh Lipsky:

“You said countries could be “squeezed by both sides.” We’ve talked about what the United States might do on rules of origin. But obviously, China has pushed back against this and is telling its partners not to go along with it. If this does move forward, do you have a sense—or have you heard any feedback since your story ran—of how China might respond?

Lingling Wei:

There’s no question the Chinese would respond if a third country were to decide to side with the United States. China has recently put out new supply-chain regulations specifically for that purpose. But as you know, those regulations at the moment are quite vague. They really haven’t detailed which companies or sectors would be subject to Chinese retaliation. That is the point, however: the vagueness is intentional. It’s China’s way of keeping everyone on their toes, and it is using this as a threat going into the negotiating room with the United States.

Josh Lipsky:

I want to step back from rules of origin. We’ve gone very nitty-gritty and surgical, as you said. But there’s a broader trade issue between the United States and China. How present do you think the existing tariffs will be in the upcoming summit between President Trump and President Xi, or are we still in a temporary pause mode going forward? And more broadly, what are you looking for in the summit in two weeks?

Lingling Wei:

Based on my reporting, I do not expect tariffs to be front and center in the coming negotiations or in the summit between President Trump and President Xi. The conversations we have had—particularly with the Chinese side—suggest that they are still very much laser-focused on export controls. That is their top priority in negotiations with the United States, and some Chinese officials are not very happy that the Commerce Department has so far not been as centrally involved in the process as they would have liked.

So, if we talk about expectations for the summit, I do not expect a grand bargain. The structural disagreements between the United States and China are not the kind that get resolved in a single meeting. What we should expect instead is what I would call a managed handshake: some deliverables on the surface that allow both sides to claim a stabilizing visit, with harder bargaining left to the working level afterward. The second thing I would say is that optics will matter. Where do they meet? How long is the bilateral meeting? What does the final statement actually commit either side to versus merely acknowledge? In US–China diplomacy, those details often carry as much weight as the substance.

Overall, there are four areas I will be watching in the economic and trade space. First, critical mineral exports. I will be watching whether there is any softening of Chinese export licensing on rare earths such as gallium and germanium. That would be a consequential deliverable because that is where China has kinetic leverage today. The second area is semiconductor and AI export controls. The Chinese side will push hard on this. The question is whether the United States signals any willingness to roll back or pause specific export control measures. Third, agriculture and energy purchases are the easier deliverables—soybeans, LNG, and similar commitments that can be scaled up relatively quickly. And fourth—and to tie it back to what we already discussed—rules-of-origin language. That is probably not likely at this coming summit, but I would still keep a close eye on any phrasing or terms that signal whether it will be discussed, whether through a commitment, a working group, or even just a placeholder.

Jessie Yin:

The Trump–Xi meeting was actually postponed in April, and the reason cited by the White House was the conflict in the Middle East. As the Iran war is still ongoing and could possibly escalate, do we think it could be pushed again?

Lingling Wei:

At this very moment, I think all gears are in motion. Obviously, the war in Iran is still the wild card—so there is definitely still a possibility that the summit could be delayed or canceled again, but it does not seem likely.

Josh Lipsky:

I want to ask you about another story you wrote leading up to the summit. It was a great piece in The Wall Street Journal about all the protocol that goes into these high-level state visits. Could you talk a little about what goes on behind the scenes? And there is a history here between President Trump and his past visit to China that I’m sure weighs on all the planners as they prepare for him to come to Beijing again.

Lingling Wei:

Thank you for mentioning that story, Josh. You know more than I do about how much work actually goes into planning a leader summit like this. You’ve experienced it yourself as a journalist and have covered US-China relations for more than a decade.

The spark for the story really came from the fact that I had all these anecdotes accumulating in my notebook, and I was trying to find a way to write about them. So we decided to make a slightly quirkier kind of story out of those anecdotes. The one that jumped out at me the most was Trump’s last visit to China, which was in November 2017 during his first term. Obviously, we—meaning all the journalists around the world—wrote about the pomp and circumstance of that visit. The Chinese threw him a state visit-plus. But behind the scenes, there was quite a high level of tension between both sides.

The anecdote we feature in the story is that a fight broke out between President Trump’s security detail and Xi Jinping’s security agents right when the two leaders were meeting in an adjoining room in the Great Hall of the People. You can’t make this up—it was like a movie scene. Two very senior diplomats, one American and one Chinese, had to intervene physically to pry the two sides apart. The Chinese representative was an official called Qin Gang. I’m sure for your listeners that’s a familiar name. At the time, he was in charge of protocol at the Foreign Ministry, and he was later promoted to become China’s ambassador in Washington and then China’s foreign minister, before he disappeared. So that’s a little scoop for you.

Josh Lipsky:

That is a great little tidbit—and the reason I’m smiling, Lingling, is that as you know, I used to do advance work. And I was remembering, as I read your story, a situation in Saudi Arabia when the king passed—this is over twelve years ago now. Back then, I got into a confrontation with a Saudi royal guard who wouldn’t let the press pool in to take pictures of then-President Obama and the crown prince. So when I read your story, I thought: people really don’t realize what goes on behind the scenes. It looks very smooth on the surface, but in the background, there is a lot going on.

Lingling Wei:

You didn’t strike me as an aggressive person, Josh! But let me say that the same thing happened with Dennis Wilder, who told me a story about how aggressive Chinese security guards were when George W. Bush was visiting China during one of his trips in the early 2000s. He had to intervene to help the journalists, too.

Josh Lipsky:

Well, we wish all of the advance teams on both sides a pleasant visit, with no ruffles and no fights behind the scenes. There’s one other tidbit from that story, and it involves President Xi, DNA, and forks. And I think this is something that surprises people who are not familiar with it. Could you explain the sensitivity around his eating and what goes on around that?

Lingling Wei:

Right. I actually have no idea what Xi likes to eat, but I can only imagine he is not a huge fan of Western food because he really hasn’t been that exposed to Western culture. The whole story was about the working lunch he had with President Biden just outside San Francisco in 2023. It was a three-course meal—and as I remember, the main course was ravioli. My understanding was that Xi didn’t finish the whole meal, but he certainly tried the ravioli and probably ate one or two pieces. As soon as he finished the lunch and stood up, his security agents sprang into action, walked over, and basically collected the plates, utensils, and leftover food, then sprayed them with some kind of unidentified liquid. This action, of course, sent a pretty clear message: they did not want any biological material from a top leader falling into foreign hands. I later consulted some experts, and one theory was that there are modern technologies that could, in theory, use DNA to target individuals. It sounds like something out of “Mission: Impossible”—and it strikes me as both deeply absurd and deadly serious. From the Chinese perspective, they leave nothing to chance

Jessie Yin:

I also like the anecdote about how, during Obama’s visit, the person supposed to drive the truck that was meant to attach the fancier stairs to the plane didn’t speak English. So he didn’t end up moving the truck, and it turned into this big snub that Obama couldn’t come down the fancier stairs.

Lingling Wei:

Yes, that was the G20 summit in Hangzhou in 2016. The Chinese sent a driver to operate the staircase truck, but he didn’t speak English, and the Americans didn’t trust him to maneuver it alongside Air Force One. The Chinese offered a translator, but the US side declined. And there was a moment when it became quite heated. One Chinese Foreign Ministry official basically shouted at the Americans: “This is our country. This is our airport!

Jessie Yin:

For the last question, let’s pull back from the nitty-gritty of rules of origin and the meeting protocols. I think there is a sense in Washington that this summit could end up producing a kind of prolonged détente that stretches into the G20 summit in Miami. That would give the United States time to strengthen or diversify critical mineral supply chains, or more broadly reduce its reliance on Chinese imports. What do you think the assessment is on the Chinese side?

Lingling Wei:

That’s a great question. I have heard many people using the word “stability” to describe what the Chinese want from this summit. That is true. But I would slightly reframe it: I think what the Chinese are expecting is a kind of “institutionalized friction.”

What that means is that, on the surface, there are no more huge dramas like the ones we witnessed last year, but we are in for a relationship that is constantly being re-architected—one technical regulation at a time. We have already seen some new defense-related regulations coming out of the United States, and just in the past few days we have seen refined export controls, new rules on critical minerals, and potentially additional rules-of-origin frameworks coming up. Each step looks small, but they all add up and, cumulatively, could reshape the global trading system.

One more point that is genuinely important—and probably a little under-discussed—is that Beijing is playing a long game, while Washington is playing a faster one. The US administration operates on electoral cycles; the Chinese leadership does not face those constraints in the same way. The system in Beijing is able to plan on a decade-long horizon. That asymmetry really matters more than any single tariff or agreement.

Josh Lipsky:

Thank you, Lingling.