Economist: The truce between Washington and Beijing is fragile economy

As global markets await the upcoming summit between US President Donald Trump and his Chinese counterpart Xi Jinping in South Korea, China economist Scott Kennedy warned that “the emerging truce between the two countries may be based on a shaky foundation,” according to a Bloomberg report.

Kennedy, a senior advisor at the Center for Strategic and International Studies in Washington, said in an interview with Bloomberg that “the current calm may only last for a few months,” stressing that the initial understanding that US Treasury Secretary Scott Besent spoke about “does not address the fundamental differences between the two sides over economic justice and economic security.”

Warning of overconfidence and possible escalation

According to Bloomberg, Kennedy had warned a year ago, on the eve of Trump’s election victory, that China “may respond much more forcefully” to any American escalation in the Republican president’s second term, adding that the new situation “could be very chaotic.”

His warnings seemed realistic this year after Beijing responded by imposing strict restrictions on exports of trace elements and their products, in addition to halting purchases of American soybeans.

In his analysis of the current relationship, Kennedy explained that both sides “exhibit excessive confidence in their negotiating position.” The Trump administration believes that the US trade deficit gives it an advantage because American consumers “can buy alternatives,” while Chinese producers are less flexible.

However, Kennedy stressed that this thinking “dates back to perceptions dating back to 1977, before China developed its control over global supply chains, especially in vital minerals.”

He added that Washington overestimates the weakness of the Chinese economy, saying that this characterization “greatly exaggerates its fragility,” noting that Beijing, for its part, “seems very confident in its ability to withstand pressure and face economic pain more than the United States.”

China’s goal is no longer merely “preventing economic separation from Washington,” but may also become “defeat and weaken the United States in the long term.”

A shift in China’s goals

Bloomberg quoted Kennedy as saying that he observed in recent months through sources in China that “the level of confidence has risen to a point that may prompt Beijing to change its goals,” explaining that its goal is no longer merely “preventing economic separation from Washington,” but may have become “defeat and weaken the United States in the long term.”

Kennedy pointed out that the complexity of the situation is increasing due to the absence of a clear American vision, asking: “It is not yet clear whether the Trump administration has a grand strategy towards China, or whether it has one at all,” and added, “All of this calls for caution against being overly optimistic about the current truce.”

The tension between Washington and Beijing remains, at its core, based on a deep struggle over economic and technological influence

In a closing warning, Kennedy said: “There is still a real possibility that things could escalate beyond all expectations, even after everything we have seen over the past year,” adding: “We should worry that things may get worse before they get better.”

The Bloomberg report concluded that the tension between Washington and Beijing is still, at its core, based on a deep struggle over economic and technological influence, and that any “temporary calm” may hide behind it a frantic race toward control of global supply chains.

In light of excessive mutual trust, and the absence of a clear US strategy, it appears that the risk of escalation still exists, and perhaps closer than markets expect.