U.S. President Donald Trump unexpectedly adopted a conciliatory tone on tariffs toward China, stating that the current 145% tariff on Chinese imports is “very high, and it won’t stay that way… It will come down substantially, but it won’t be zero.” This marked a significant departure from the aggressive rhetoric of early April, fueling optimism in equity markets.

On the other hand, China made clear it is open to dialogue—but only under equal terms. Chinese Foreign Ministry spokesperson Guo Jiakun said, “We do not want a fight, but we are not afraid of confrontation. If we must fight, we will fight to the end; if we talk, the door is wide open.” This, along with a similar message from the Ministry of Commerce, underscores that any reports of advanced negotiations are premature.

China Flatly Denies Ongoing Negotiations

Despite Trump and Treasury Secretary Scott Bessent signaling a willingness to deescalate, China’s Ministry of Commerce issued a direct rebuttal Thursday, stating: “There are absolutely no economic or trade negotiations ongoing with the U.S.” Ministry spokesperson He Yadong further added, “Any claims to the contrary are inaccurate.” Beijing’s demand remains unchanged: a full rollback of unilateral U.S. trade measures.

China has also issued warnings to countries considering aligning with Washington at Beijing’s expense, signaling a hardened diplomatic stance. Yue Su, a senior economist at The Economist Intelligence Unit, noted, “The incoherence of Trump’s policy is reshaping China’s strategy—shifting from ‘what do you need from us’ to ‘what do we need from you.'”

Trade Flow Shift Since 2018: A Structural Realignment

Since the launch of the original trade war in 2018, bilateral trade volumes between the U.S. and China have contracted significantly. American companies have increasingly diverted their supply chains to countries such as Vietnam, Mexico, and India. In response, China has intensified regional cooperation through the RCEP agreement and deepened trade ties with Southeast Asia. As a result, ASEAN nations have overtaken the EU as China’s top regional trading bloc.

This contraction in direct U.S.-China trade has not translated into an overall decline in China’s global trade activity but rather a geographic redistribution of trade flows. It has also accelerated the trend of fragmented supply chains and the emergence of a “multi-flag” manufacturing strategy, where companies set up operations in politically neutral locations to avoid geopolitical risks.

Tariffs and Inflation: A Slippery Slope

A 145% tariff on a broad range of Chinese goods is likely to raise import costs for U.S. firms, exerting pressure on price indices. The Producer Price Index (PPI) could react in the short term as manufacturers pay more for raw materials and components. Over time, this may translate into higher Consumer Price Index (CPI) readings, particularly in sectors such as electronics, apparel, toys, and automobiles.

Moreover, rising input costs could push small and mid-sized businesses toward more expensive financing channels, exacerbating margin pressure and triggering a price ripple effect across the value chain. There’s also concern that tariffs could generate “imported inflation” for non-substitutable goods like communication technologies and specialized materials.

The Federal Reserve is monitoring these developments closely, as persistent price increases may complicate its rate path and inflation control objectives. Conversely, a breakthrough in trade negotiations could swiftly ease inflationary pressures—but not without immediate market consequences.

Market Response: Gains with Caution

Investors welcomed the softer tone with enthusiasm. As of April 23, 2025:

• The Dow Jones rose 1.07%
• The S&P 500 gained 1.67%
• The Nasdaq Composite surged 2.50%

Still, analysts warn of potential “whiplash” if Trump reverses his stance. Additionally, a lawsuit filed this week by 12 U.S. states challenging the legality of Trump’s tariffs could open a broader constitutional debate over executive trade authority.

Conclusion: Fragile Trade, Firm Interests

While the public statements from both sides suggest a narrow window for compromise, the underlying gap remains wide. China insists on a complete elimination of tariffs, while Washington only signals partial softening. Markets, as usual, react to every nuance—but restoring trust in U.S.-China trade relations will take more than diplomatic posturing.

Ultimately, this is no longer just a dispute over tariffs—it is a deeper confrontation over economic models, technological dominance, and global influence. In this climate, even the smallest rhetorical shift can trigger billion-dollar movements in financial markets. The trade conflict between Washington and Beijing has evolved into a strategic rivalry that will shape the global order well into the 21st century.