China reacts to the trade war with economic package and charges retreat from the USA

China announced last Wednesday (7) the largest economic stimulation package since the beginning of the new phase of trade war with the United States. The measure, which includes interest cuts, reducing bank compulsory and support to the real estate sector, injects more than 1 trillion yuan into the economy and was presented on the eve of the resumption of formal dialogue between the two countries.

The gesture reinforces Beijing’s position in the face of Donald Trump’s tariff climbing and is accompanied by a clear political message: the US must “show sincerity” and abandon coerction as a negotiation method.

At a press conference, China Ministry spokesman He Yadong stated that “negotiations should not be façade for unilateral pressure” and that the United States need to review their “wrong” actions, including tariff removal.

The meeting scheduled to start on Friday in Geneva, Switzerland will be attended by Chinese Deputy Primeira He Lifeng, US Treasury Secretary Scott Bessent, and commercial representative Jamieson Greer. It will be the first high level meeting since the imposition of US tariffs of up to 145% on Chinese products in early April.

The package announced by the Popular Bank of China provides for a 0.5 percentage reduction in the compulsory reserve coefficient of commercial banks, the release of 1 trillion yuans (about US $ 138 billion) in liquidity and the 0.1 point cut in the reverse repurparance of seven days, which is 1.4%. It was also reduced by 0.25 points, the interest charged in subsidized housing programs, now fixed by 2.6%.

The Central Bank also eliminated the required compulsory from automotive financial and financial leasing companies, in an attempt to expand the credit capacity of sensitive sectors.

Chinese authorities have classified the set of measures as part of a “moderately loose” monetary policy, necessary in the face of a global “uncertainties” global economy and with productive chains fragmented by commercial tensions. According to Pan Gongsheng, president of the Central Bank, the goal is to ensure the functioning of the economy’s internal mechanisms and creating a more predictable environment.

The announcement occurred a few hours after confirming the meeting with the US, which reinforces the reading that the stimulus also fulfills strategic role in the negotiations that start in Geneva.

Return on consumption and slowdown in exports – responsible for about 15% of Chinese GDP – the Xi Jinping government bets on a domestic -oriented stabilization policy. The growth target from 5% to 2025 is at risk, and the real estate sector, which has already responded for one third of economic activity, is still pressured. In the first three months of this year, real estate sales fell 3% and investments in the sector retreated 10%.

The measures announced try to reverse this scenario, but they also function as a clear message: China does not present themselves to the fragile negotiation table.

Internal economic pressures in the US forces Trump to resume dialogue with Beijing

On the American side, the reopening of the dialogue was precipitated by an accumulation of internal pressures. Since the imposition of April fees, industrial and commercial sectors have been warning of the risk of recession. Toys importers, electronic components and auto parts already report price increases that affect consumption. Large retailers like Walmart, Target and Home Depot were gathered with Trump last month and asked for immediate tariff review. Reports from the US press indicate that the president would have classified the meeting as “productive”, although no concrete decision has been disclosed.

According to Ker Gibbs, executive-resident of China Business Studies Initiative at the University of San Francisco, “American companies feel that they are about to fall from a cliff and cannot fly.” The warning is reinforced by Nick Marro, chief analyst at Economist Intelligence Unit, who sees with concern the excessive confidence on both sides. “It’s dangerous when two governments believe they can support the confrontation indefinitely. This maintains strict positions and makes real concessions difficult.”

With this, US companies have already begun to adapt their strategies. Importers began to stock off goods waiting for tariff relief and suppliers adjusted quotes based on ranges from 10% to 54%, providing for possible flexibility by the White House. The information that the Trump government is studying to reduce part of the tariffs was disclosed by the New York Postbut officially denied by the White House, which classified the news as “mere speculation”.

Geneva opens a new political channel, but agreement is still distant

The meeting in Geneva, which will extend for four days, is seen by diplomats and analysts as a first step to avoid even greater deterioration of bilateral trade. According to Stephen Olson, researcher at ISEAS – YUSOF ISHAK Institute, the meeting will be “a conversation about what may be a negotiation.” The Chinese government itself avoids calling the event “negotiation” and defines it only as “technical contact”, signaling that there is no expectation of formal announcement or immediate results.

For Zha Daojiong, professor of international political economy at the University of Beijing, the best scenario would be a simultaneous announcement of tariff reduction. “But my reading is that expectations are low – perhaps for both sides,” he said. The dominant perception is that the meeting will serve to restore a communication channel and allow, in the medium term, some distension. However, the climate remains marked by distrust and absence of clear commitments.

At the center of the dispute is the absence of a cohesive strategy within the Trump administration. While the president prioritizes commercial deficit and job recovery, Treasury Secretary Scott Bessent demonstrates concern about valuing the dollar, and commercial representative Jamieson Greer defends structural reforms in the bilateral relationship. This dispersion of objectives makes US posture less predictable and reduces the chances of a consolidated short -term agreement.