Sino-US negotiations in Switzerland: a prelude to Sino-US decoupling

Amid tariff reductions and rare earth dependencies, U.S.-China negotiations mask deeper systemic rifts, as both nations brace for an irreversible economic split amid dollar hegemony's decline.

According to the latest news, delegations from China and the United States launched globally watched trade negotiations in Switzerland.

This negotiation was a China-US trade negotiation between the US delegation, represented by US Treasury Secretary Bessent, and the Chinese delegation, represented by Chinese Vice Premier He Lifeng.

This trade negotiation is a very important trade negotiation between China and the United States since US President Trump launched a full-scale trade war on April 2.

Historic meeting between China and the United States

Since Trump launched his full-scale tariff war on April 2, relations between China and the United States, the two largest economies in the world, have reached a freezing point. The trade volume between the two sides, amounting to hundreds of billions of dollars, has shrunk to almost zero in an instant, adding great uncertainty to the global economy.

After May, the economic situation in the United States suddenly deteriorated due to the comprehensive tariff war. Whether it was the stock market, bond market, or exchange rate, the United States faced a very serious crisis.

Faced with the severe impact of this tariff war on both economies, both China and the United States realize that they must sit down and talk.

So, on May 11, a Chinese delegation led by Chinese Vice Premier He Lifeng met with a US delegation led by US Treasury Secretary Bessent in Geneva, Switzerland.

On May 12, the two sides held a press conference to announce that the China-US tariff negotiations had made significant progress and reached a major agreement.

According to the agreement, both China and the United States reduced their tariffs to around 10%, with the United States retaining an additional 20% tariff on fentanyl from China, which means that the overall tariff rate of the United States on China is around 30%.

The agreement reached between China and the United States is major good news for the uncertain global economy. Therefore, U.S. stocks and Asian stocks have risen one after another, and the global financial market can be said to be jubilant.

Decoupling between China and the United States is a foregone conclusion

Although China and the United States reached an epic trade deal in Switzerland, this does not mean that the hostile relationship between the two economies has eased.

This trade negotiation is more like a prelude to the formal decoupling of China and the United States, rather than a return to the past relationship between the two countries, because the trade relationship between China and the United States can no longer be sustained.

We all know that the disintegration of the Soviet Union in 1991 marked the end of the Cold War between the United States and the Soviet Union. The United States formally established its hegemony in the world, and the foundation of this hegemony is the hegemony of the US dollar.

In other words, the globalization wave that began in 1991 is essentially a global system dominated by the US dollar system.

Under this system, in order to maintain the hegemony of the US dollar, the United States must export the purchasing power of the US dollar to the world.

How to export it? The world exports to the United States, earns US dollars, and then uses the US dollars to invest in US assets, such as US stocks and US bonds, to achieve the circulation and return of the US dollar.

We call this system where the US exports US dollars to the world, and the world then uses US dollars to invest in the US, the "dollar circulation system".

To maintain this system, the United States needs to continuously export dollars to the world. Since the dollar was decoupled from gold in 1971, it has become a de facto debt currency. Every dollar exported by the United States to the world means that the United States has to bear one dollar of debt.

This will result in the U.S. government's debt burden continuing to increase as the dollar circulation system continues to operate. So far, the U.S. government has already shouldered a huge debt of more than 36 trillion U.S. dollars. If this continues, the U.S. finances will inevitably go bankrupt.

The relationship between China and the United States is actually part of the dollar circulation system. China exports goods to the United States, the United States exports dollars to China, and then China invests the dollars in U.S. stocks and Treasury bonds, realizing the dollar circulation between China and the United States.

As we discussed earlier, such a system would cause the U.S. debt burden to continue to increase and the U.S. to the brink of bankruptcy.

The American Republicans, led by Trump and Musk, have seen the reality that the United States is on the verge of bankruptcy, so they must end the situation of the United States' continuous debt to avoid the final bankruptcy of the United States.

However, if the U.S. government debt is ended and the export of dollars to the world is stopped, the dollar hegemony, an important tool for reaping the benefits of the world, will be lost. This is something Trump and others cannot give up, so Trump came up with the idea of ​​a global trade war.

The essence of Trump's global trade war is to legally default on the $36 trillion debt without shaking the dollar's hegemony.

Trump's idea is good, but unfortunately, countries around the world are not fools. They will not sit idly by and watch the U.S. Treasury bonds in their hands become useless waste paper. This is also the fundamental reason why it is difficult for Trump to reach an agreement with other countries.

Moreover, the side effects of a global trade war are also huge. If it is not handled properly, it is very likely to destroy the dollar hegemony. Therefore, Trump's initiation of a trade war is tantamount to taking a huge gamble.

No matter what the outcome of this gamble is, the U.S. model of exporting dollars to the world will not be able to continue. If the United States does not export dollars to the world, it means that its purchases of foreign goods will gradually decrease, including purchases of Chinese goods. Therefore, it is only a matter of time before trade between China and the United States is cut off.

Therefore, the trade negotiations between China and the United States in Switzerland are not intended to stop the general trend of decoupling between China and the United States, but to slow down the pace of decoupling between China and the United States to minimize the damage to the two economies.

The main content and subsequent development of the Sino-US-Switzerland negotiations

The main purpose of the China-US negotiations in Switzerland is not to reverse the trend of decoupling between China and the US. Both the US's Benson & Shaw and China's top leaders understand that decoupling between China and the US is inevitable. Therefore, the China-US negotiations in Switzerland are only to slow down the pace of decoupling between the two sides.

Because the decoupling between China and the United States seems too hasty. China has not yet made plans for economic transformation, and the United States is not ready to lose China, especially China's rare earths. The United States does not have enough alternatives for the time being.

What is decoupling? Both sides must have sufficient resources to decouple. Currently, the United States is particularly short of rare earths, and its rare earth stocks will run out in a short time. Therefore, decoupling between China and the United States is not realistically feasible at present.

This is the fundamental reason why China and the United States can sit down at the negotiating table in Switzerland. China needs a certain amount of time to transform its economic model, and the United States needs a certain amount of time to stockpile rare earth resources. At least the United States must set aside time to take over Greenland.

Therefore, this round of China-US negotiations will definitely achieve some results, such as the supply of rare earths, some exchanges of geopolitical interests, the Taiwan issue, etc. China and the United States will reach a phased consensus.

Once the United States has sufficient rare earth stocks, once the United States takes over Greenland, and once China's economy has smoothly transformed, the decoupling between China and the United States will accelerate.

China holds a summit with CELAC (Latin American Countries) to tackle US-China decoupling

Precisely because the decoupling between China and the United States is inevitable, China held a summit with CELAC countries and reached a series of agreements at the meeting, including a local currency swap agreement between China and Brazil.

The local currency swap agreement between China and Brazil is the latest progress following the local currency swap agreement between China and Argentina.

This new agreement means that Brazil can use Brazilian currency to exchange for Chinese yuan in trade with China to cope with the shortage of RMB reserves in Brazil.

In this way, Brazil will no longer or reduce the use of US dollars in bilateral trade with China, which can greatly accelerate the process of RMB internationalization. This is undoubtedly good news for many southern countries that lack US dollar reserves.

In addition to local currency swaps, China has also granted Latin American countries many visa-free policies and increased the number of Latin American students studying in China. This can promote personnel exchanges between Latin American countries and China and increase mutual trust between the two sides, which is a good thing for both China and Latin America.

China and Latin American countries such as Brazil have increased local currency swaps and personnel exchanges to hedge against the adverse effects of decoupling between China and the United States, and also to counter the U.S. attempt to suppress China globally.

In general, the trade agreement reached between China and the United States is a major victory for China. It shows that the United States is no longer a country that can run rampant around the world. It also stabilizes the economic relations between the two sides, which is beneficial to the global economy in the short term.

However, we must clearly realize that although China and the United States have signed an agreement, as long as Trump does not give up the idea of ​​suppressing China, the tariff war between China and the United States may still start again.

Therefore, globalization can no longer go back to the past, and decoupling between China and the United States is the trend of historical development.