The Great Trade Tariff Saga of 2025 continues…
On Monday, in a joint statement from Geneva, it was announced that the United States and?China had agreed to a 90-day pause on the?tariffs they had put in place over the last month. In the interim, they are, “Moving forward in the spirit of mutual opening, continued communication, cooperation, and mutual respect.”
What exactly this means, no one knows. But it sounded good. And it gave investors a ‘warm and fuzzy,’ which is exactly what they needed.
For practical purposes, U.S. tariffs on Chinese imports will be cut to 30 percent from 145 percent, and China’s tariffs on U.S. imports will be cut to 10 percent from 125 percent.
Wall Street celebrated the news with concerted buying. On Monday, the S&P 500 closed the day with a 3.26 percent gain and the NASDAQ finished with a 4.35 percent gain.
How pleasant. The Liberation Day dip has been vanquished. The S&P 500 and the NASDAQ are both back to where they started the year.
Yet some people are never happy. Senator Chuck Schumer, looking for cheap political points, posted the following analysis to X:
“Sadly, it looks like China once again got the better of Trump. Another example of Trump chaos. He has one policy one day, one the next. Who knows what it’ll be tomorrow.”
Obviously, Schumer hasn’t been paying attention. If he had, he would understand this is all part of Trump’s art of the deal strategery…
Go big. Cause chaos. Bluster. Cut an agreement that’s much less than initially proposed. Declare victory. Rinse. Repeat.
This is Trump’s bread and butter. He learned it at a young age watching the pioneering work of his dad, Frederick Christ Trump Sr. It’s Development 101…
Let’s Play Charades
We’re talking about the old dance of exaggerated ask and strategic retreat that takes place in front of planning commissions across America. The bold housing developer must go big when proposing a new subdivision, so when the planning commission cuts it back to appease constituents, he ends up with what he wanted all along.
For example, the developer’s true desire may be a 100-unit subdivision. He believes this is the sweet spot for profit and manageable construction. But if that’s what he leads with, he knows the planning commission will cut it back to 75 units.
Instead, the developer proposes a sprawling 150 units. Predictably, the public freaks out. They point to a certain traffic apocalypse, overflowing schools, and the destruction of the scenic landscape. Retirees, in search of meaning and purpose in life, feign outrage over the loss of ground squirrel habitat.
The planning commission, salivating over the future property tax revenues, must pretend to represent the interest of their constituents. So, they look for a grand compromise.
Having acted this charade out before, the developer plays to the plot of mutual cooperation. He expresses “respect for the process” and acknowledges that “this is how good democratic government should work.” He then scales back his proposal to a modest 100 units and even sets aside a few acres for ground squirrel habitat.
The planning commission, with egos boosted for taming the perceived urban sprawl, approves the 100-unit development. Commissioners flatter themselves for the expanded tax base and new money that can go to the community center’s afterschool programs for disadvantaged youth. The retirees give high fives to each other for the important victory they achieved by saving the poor ground squirrels.
And just like that, through the art of exaggerated ask and strategic retreat, the developer gets the 100-unit subdivision he wanted all along.
Playing a Bad Hand
Now, Trump has taken his act from the planning commission chamber to a high-stakes poker game with China. His opening bid? A tariff proposal so enormous it makes the Great Wall look like a garden fence.
Naturally, China retaliated with tariffs on the U.S. that were equally massive. Immediately, the stock market crumbled like a stale fortune cookie. Was this all part of Trump’s grand plan?
Like the subdivision developer, his initial demands were a clear case of strategic overreach. Remember, to dazzle with the art of the deal, the opening offer must be about bluster and theater. The purpose is to cause chaos and confusion.
Then comes Treasury Secretary Scott Bessent, the ultimate professional, to manage the negotiation. But, alas, things didn’t go according to Trump’s plan.
You see, Bessent was dealt a bad hand by decades of American industrial apathy. Byron King, at the Daily Reckoning, explains:
“The fact is that China holds a not-so-secret trade weapon…. It gives China’s Premier Xi an asymmetrical ability to retaliate against Trump’s tariffs. Indeed, Beijing’s scheme is already playing out via widespread Chinese embargoes on critical materials that are no longer moving to the West. Over time, China’s actions will literally shut factories and turn out lightbulbs across the U.S. economy.”
Team Trump should have anticipated that China would play this simple counter for U.S. tariffs on the cheaply made goods that fill the shelves at Walmart. By curtailing shipments of critical materials and minerals, which are primarily produced in China, it can severely weaken the U.S. economy and its military.
From Strategic Retreat to Full Retreat
Modern economies – and militaries – depend on critical materials and minerals to make technology work. Things like circuit boards, chips, software, sensors, and complex components.
At the basic level, what technology needs to work are certain metals, or rare earth elements (REE). These metals are part of the periodic table of elements. But they are different than the metals you typically think of, like iron, copper, lead, zinc, and aluminum.
These metals are the elements used in handheld smart phones and modern cars and appliances. You’ve likely never heard of them. Elements like praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium. These REEs are also critical to modern day technological weapon systems.
In 2019, at the height of Trump’s last trade war posturing, China threatened to cut off the U.S. from access to REEs. Starving the U.S. of these critical materials would, over time, bring the economy and military to its knees.
Apparently, Trump has a short memory. Starting another trade war with China without first having an alternative supply chain for REEs was exceptionally rash. Until America revamps its supply chains and begins producing more of these materials at home, China holds the upper hand.
Thus, strategic retreat quickly turned to full retreat. And the meeting in Geneva ended up being nothing more than a staged, choreographed charade.
There were no concessions or compromises. Just a 90-day pause on the Liberation Day bluster. And a joint statement full of meaningless words.
“Sometimes nothing can be a real cool hand,” remarked Lucas Jackson, played by Paul Newman, in the movie Cool Hand Luke, after winning a poker game by bluffing with a hand full of nothing.
Of course, this strategy quickly unravels if your opponent calls your bluff. China has effectively called Trump’s bluff.
Not that China doesn’t have its own issues. A shrinking population. An overleveraged property market. Angry, unemployed youth. An economy that’s exceedingly dependent on exports.
But it also has a communist party government that would rather cut off one’s nose to spite one’s face than concede to Trump. This makes getting a trade deal nearly impossible.
In closing, the next 90 days will be fast and furious for international trade. Budget accordingly.
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Sincerely,
MN Gordon
for Economic Prism
Return from, From Strategic Retreat to Full Retreat to Economic Prism
