Trump and Xi agree trade truce but new global order is here to stay

Global markets heaved a sigh of relief as Presidents Trump and Xi reached a truce, dampening the US threat of 100 per cent tariffs and causing China to hit pause on its new restrictions for rare earth exports. Amid the celebrations, the assumption that this marks a return to the old globalised system would be a costly error. The era of seamless global trade ended with two pivotal events Covid and the rise of China.

During the pandemic, British officials were swiftly reminded of the importance of domestic production, especially for critical supplies like medical grade PPE. Cabinets across developed economies now actively monitor supply chain resilience, a consideration that has driven a fresh emphasis on national capabilities. While the UK cannot aspire to total self-reliance, its role as a key link in indispensable supply chains has become paramount. The Netherlands, owing to ASML’s critical place in semiconductor manufacturing, enjoys outsize leverage with both Washington and Beijing. Likewise, points of strength such as quantum refrigeration or semiconductor architecture provide the UK with their own strategic advantages in an increasingly protectionist world.

This shift has coincided with a recalibration in the West’s relations with China. Optimistic hopes that China’s admission to the World Trade Organisation in 2001 would engender liberal reforms proved misplaced. Instead, state subsidies warped markets and the lines between public and private enterprise blurred under Beijing’s growing authority. The Huawei controversy crystallised this dilemma for the UK, where cost effective 5G equipment was ultimately rejected for reasons of national security. Across the G7 – and much of the EU and Australia – inbound Chinese investment now faces unprecedented scrutiny.

The death of the old order was hastened by President Trump’s aggressive tariffs on Chinese goods and his relentless focus on erasing US trade deficits. US scepticism towards free trade precedes Trump by years, with the Obama administration steering clear of the transPacific partnership it had itself negotiated. Even President Biden, when in office, made plain the limited scope for economic liberalisation given domestic constraints. The US reluctance to dismantle tariffs persists, sustained by the revenues they yield and the political appeal of protectionist sentiment.

European leaders have thus far resisted retaliating against American tariffs, rightly fearing that a full blown trade dispute would fracture Western unity on pressing issues like Ukraine. The lesson of history is clear tariffs are rarely abandoned without powerful incentives. They rise rapidly but tend to recede only slowly and under duress. As a result, elevated trade barriers will define global commerce for the foreseeable future, with businesses expected to adapt accordingly. Even changes in the White House offer little hope for a swift reversal.

The deal struck between Trump and Xi represents only a truce not the end of US China economic competition. China’s dominance in rare earths grants it formidable leverage, a reality it is likely to exploit when the opportunity arises. The new world order is one of strategic calculation over naïve globalism, and nations would do well to identify and develop their unique strengths within the emerging map of supply chains and economic power blocs.