Global markets breathed a sigh of relief after the U.S. struck trade deals with the EU and Japan. After all, agreements made with key partners is a far better outcome than many feared on Liberation Day back in April. So between these deals, and Trump’s habit for backing out of threats at the last minute (leading to the so-called TACO trade) one might wonder: Is the worst of the tariff-related volatility behind us?
Not even close, says Wilbur Ross, who served as Commerce Secretary in President Trump’s first administration.
Secretary Ross lauded the White House’s achievements: to sign a handful of deals with global economic forces in a matter of months. But he’s skeptical that the Oval Office’s success thus far will guarantee them a win with America’s major rival, China.
In fact, Secretary Ross wouldn’t be surprised if negotiations slip back into an all-out trade war when a 90-day pause on escalation between the nations expires in the second week of August.
“I’m not so sure that we’ll be able to make a deal with China,” the banker turned D.C. power player tells Fortune in an exclusive interview this week.
“I do think that the Japan deal and the EU deal both put a lot more pressure on China,” he added, but in the short term, Beijing is unlikely to capitulate to America’s demand because of calendar conflicts.
In August, Beijing’s top leaders will reportedly gather in the seaside resort of Beidaihe to agree on key policy and personnel moves. It would be “very unusual for them to do something as controversial as settling with the U.S. just before” such a meeting, Secretary Ross added.
Indeed, while an agreement with the U.S. will make logical sense to Chinese politicians and economists, Secretary Ross said politically, Beijing will not want to be seen as “submitting to Trump’s demands.”
China has been forceful in its response to Trump’s tariff policy, reacting with its own reciprocal measures when the Oval Office announced its own hikes. The tit-for-tat escalation at one point saw the U.S. enforcing an 145% hike on Chinese imports, while Beijing responded with a raise of approximately 125%—all of which were subsequently delayed for 90 days in May.
Officials didn’t mince words about the White House’s agenda and rhetoric, either.
“China’s position has always been consistent: If it’s a fight, we will accompany it to the end; if it’s a talk, our door is open. The tariff war and trade war were unilaterally initiated by the U.S.,” China’s Commerce spokesman said in a statement on May 2. “If the U.S. wants to talk, it must show genuine sincerity—be prepared to correct its wrong practices and cancel the unilateral tariff increases.”
The minister added: “Saying one thing and doing another, or even attempting to use talks as a pretext for coercion and blackmail, will not work with China.”
Despite the spiky rebuffs to Washington’s tactics, Secretary Ross added there have been no suggestions that China will do anything “dramatic.”
“I think there’s a high possibility—not a majority, but say 40-50% possibility, that they’ve decided not to do a deal right now, but just let the high tariffs sit,” he added.
Back to Liberation Day
If President Trump can’t agree to a deal with China in the next fortnight or so, Secretary Ross said markets can expect to see economic sanctions on either side return to the higher levels seen before a pause was agreed those three months ago.
This would “pretty well eliminate Chinese exports to us,” Secretary Ross added. “For the most part, they’re not gonna be able to absorb those tariffs.”
There could be some effort on behalf of China to find a way around the economic sanctions, the former cabinet member added, potentially finding shipping routes via nations with lower tariff rates to America. How President Trump might close this loophole, Secretary Ross said, remains to be seen: “How well that will work I don’t know. We don’t know the exact details of what has been agreed, and that’s a little bit tricky to enforce in any event because it involves the day to day cooperation of another country, so it’ll be a little confusing, but worst case is that we’ll be back where we were before he made his recent postponement with China.”
And while a loggerheads with China isn’t idea, it would mean the U.S. was only fighting a battle on one front as opposed to being left—as JPMorgan Chase CEO Jamie Dimon had warned—as “America alone.”
While Secretary Ross added markets hadn’t seen the end of market-induced volatility on account of further deals to come, and sector-specific questions still hang over industries like pharmaceuticals and rare earth, he added: “We’re in much better shape because it’s now clear that if there’s gonna be a real trade war with anyone it would just be with China, so it’s limited the risk that we have.”
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