US and China seek to repair damage from tariff war that sent trade into
a freefall
[May 14, 2026] By
PAUL WISEMAN and CHAN HO-HIM
WASHINGTON (AP) — During a tumultuous 2025, the United States and China
proved how much they could hurt each other in a trade war. Now
Presidents Donald Trump and Xi Jinping are meeting in Beijing to repair
some of the damage.
A decade of conflict between the world's two biggest economies has left
U.S.-China trade greatly reduced from the boom times of the 2000s and
2010s, forcing companies to regroup. Many American firms have shifted
production out of China to countries like Vietnam and India. And Chinese
firms have scrambled to find new customers in Europe and Southeast Asia.
But the two countries are finding that they still need each other. "The
idea of somehow China being totally independent of us and us being
totally independent of China, I think, is a fiction,'' said financier
Wilbur Ross, who served as U.S. Commerce secretary in Trump's first
term.
This week's summit is primarily about keeping the economic relationship
stable, with only modest policy announcements expected. A trade truce
reached last October likely will be extended, while China may announce
plans to buy American soybeans, beef and Boeing airplanes. U.S.
officials also have teased the creation of a Board of Trade.
Watching closely will be American farmers who were shut out of the
Chinese soybean market for most of 2025, as well as U.S. manufacturers
who lost access to China’s rare earth minerals they need to make
everything from smartphones to fighter jets.
In China, manufacturer Michael Lu is hoping the Xi-Trump summit will
herald more positive signs. Chances of U.S.-China commerce going back to
the roaring trade of 15 years ago may be slim, but factory owners in
China are expecting for at least some improvements. “The U.S. used to be
a more stable market,’’ said Lu, founder and CEO of gift box producer
Brothersbox in the southern city of Dongguan.
A freefall in U.S.-China trade
Before Trump began slapping taxes on Chinese imports in 2018, the
average U.S. tariff on China stood at 3.1%. Now, even after coming down
from the triple-digit levels they briefly hit last year, they are still
at almost 48%, according Chad Bown of the Peterson Institute for
International Economics.
In 2016, the United States did more business with China than any other
country. Trade between the two countries — exports plus imports —
accounted for more than 13% of America’s trade with the rest of the
world. By last year, China’s share had been halved to 6.4%. Mexico and
Canada had leapfrogged China to become the top two U.S. trading
partners.
The problem with the pre-Trump U.S.-China trade boom was that it was so
lopsided. China sold far more to the United States than it bought. The
U.S. deficit in the trade of goods and services with China peaked at
$377 billion in 2018. Last year, it was down to $168 billion, the lowest
since 2004.
Still, China has exported so much to other markets — Southeast Asia and
Europe, in particular — that it recorded a record global trade surplus
of $1.2 trillion last year.
Chinese companies find workarounds
The American government’s statistics probably overstate the drop in
U.S.-China trade. Many Chinese companies have relocated to Southeast
Asian countries like Vietnam and Thailand and now send their stuff onto
the United States, dodging U.S. tariffs. The Trump administration wants
to crack down on these “transshipments.’’
As China sent fewer goods to the United States last year, goods imports
from Southeast Asia surged — up 42% from Vietnam, 44% from Thailand, 24%
from Indonesia.
“It would be wrong to think that China is no longer relevant for the
U.S. market,’’ said Zongyuan Zoe Liu, senior fellow for China studies at
the Council on Foreign Relations. “Chinese goods are still coming into
the U.S.’’
Velong Enterprises, which was founded in China’s southern Guangdong
province in 2002 and makes kitchen gadgets and grilling tools for
Walmart and other U.S. retailers, diversified its supply chain in the
years since Trump’s first term in the White House in order to serve U.S.
customers, including by adding production capacity in Cambodia and
India.
“Most serious manufacturers did not simply ‘leave China,’” said Velong
CEO and founder Jacob Rothman. “Instead, they built multi-country supply
chains around China.”
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The United States and Chinese flags are flown outside a hotel
expected to be used for U.S. President Donald Trump's visit to
Beijing Wednesday, May 13, 2026. (AP Photo/Ng Han Guan)
 Contending with erratic tariffs
The trade war with China has taken a toll on Appu Jacob Varghese,
who owns Zion Foodtrucks, a small food truck manufacturer outside
Colorado Springs that imports Chinese equipment for its trucks.
“Last year,’’ Varghese said, “a lot of my hair turned white.’’
What tormented Varghese was the erratic way Trump imposed his taxes
on Chinese imports. They changed unpredictably from week to week –
and briefly shot up to a terrifying 145%. Zion Foodtrucks relied on
Chinese suppliers for the cooking and fire-suppression equipment
that goes into its $50,000 to $60,000 food trucks.
Zion’s customers typically signed a fixed-price contract and took
delivery of a brand-new food truck six weeks later. Trump’s
fluctuating tariffs meant the Varghese’s costs were bouncing around
wildly – but his contracts kept him from raising prices.
He managed to get through the year but he knew he needed to find
suppliers outside China. These days, he gets about half his cooking
equipment from Vietnam and Thailand, and the fire-fighting gear
comes from U.S. and Israeli suppliers.
He speaks highly of his Chinese suppliers but doesn’t expect to ever
rely so heavily on them again. Given the testy relations between
Washington and Beijing, he said, “it’s too risky.’’
Shifting away from China
A lot of U.S. companies are pulling back from China. Apple has moved
some of its production of its iPhones to India. Nike has stepped up
production in Vietnam.
“Trade tensions can flare up quite quickly, and that makes the U.S.
firms hesitant to rely too heavily on Chinese supply,” said Sarah
Tan, a Singapore-based economist at Moody’s Analytics whose focus
includes China.
InStyler, a hair appliances company outside Los Angeles that once
relied entirely on Chinese suppliers, is shifting some production to
South Korea and France and is eyeing Italy, Vietnam and Mexico. CEO
Dan Fugardi said trade tensions aren’t behind the moves; InStyler is
rolling out some more high-end products for luxury hotel clients,
and “there’s a little bit of panache that goes with manufacturing in
France.’’
Still, reducing reliance on China, he said, “doubles as an insurance
plan so that we’re not caught with our pants down."
Tit-for-tat
The trade skirmishing between Beijing and Washington has extended
beyond traditional tariffs and counter tariffs.
The United States has blocked shipments of the most advanced
computer chips to China, and the Chinese have blasted back by
periodically cutting off supplies of rare earth minerals crucial for
electronics.
Last year, the Chinese limited exports of tungsten – a super strong
metal used in defense, aerospace and medical device production –
because it can be used by the military as well as by private
industry. China controls about 80% of the world’s tungsten.
China also stopped buying U.S. soybeans, delivering a well-aimed
blow at Trump’s supporters in rural America. After U.S.-China talks
in October, the Chinese resumed the purchases. But U.S. soybean
exports to China nonetheless dropped 75% in 2025.
The tit-for-tat moves showed just how much damage the United States
and China can do to each other. Now there’s hope that Trump and Xi
can lower the temperature this week in Beijing.
“We are the No. 1 trading player. They are next in line,’’ said
former Commerce Secretary Ross. “We have to coexist in some way. The
question is, what will be the rules of the road, and who will
benefit the most from those rules.″
____
Chan reported from Hong Kong.
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