Global Recession Looms as the US and China Head for Trade Talks

Both sides appear to desire an offramp, but neither wants to admit defeat

• The US and China want a trade war offramp, but posturing is getting in the way.
• Chinese trade and inflation data due to show the economy remains in sorry shape.
• Global recession looms amid the trade war as global economic activity sputters.

The most critical link in the global supply chain—connecting its two largest economies, China and the US—has been bogged down in what Treasury Secretary Scott Bessent likened to an embargo. He heads to Switzerland this weekend for a meeting with Chinese officials, seeking to begin trade negotiations.

Both countries are trying to put on a brave face in the standoff. President Donald Trump has flatly refused to lower the punishing 145% tariff rate he has imposed on Chinese imports as an opening for talks. A spokesman for China’s foreign ministry said the US should stop “exerting pressure” if it truly wants a negotiated solution.

Posturing aside, China’s economy continues to look anemic

Trump seems clearly intent on lowering tariffs as part of some sort of bargain, saying “right now you can’t get any higher. It’s at 145% so we know it’s coming down.” Meanwhile, China has loudly insisted the US asked for the meeting in Switzerland, and that it is “firmly” opposed to the Trump administration’s actions.

The resulting stalemate seems to amount to the triumph of posturing over practicality. Both sides appear to be searching for an offramp, but neither one looks willing to appear as anything but the victor in the stare-down. Meanwhile, the economies at both ends of the clash are in trouble, and the world is inching closer to recession.

China is expected to report that export growth slowed sharply in April. Economists have penciled in a rise of 1.9% year-on-year after the sharp 12.4% jump in the previous month. Imports are seen falling for the third month straight. Consumer price index (CPI) data is expected to bring ongoing deflation at 0.1% year-on-year.

Global recession approaches as the U.S. and China spar

Earlier this week, purchasing managers’ index (PMI) data from S&P Global and Caixin put Chinese economic activity growth at the weakest in three months. Business sentiment fell to the lowest since the survey began in 2012. That lined up with official PMI statistics from the China Federation of Logistics and Purchasing (CFLP).

Meanwhile, dual U.S. PMI data from S&P Global and the Institute of Supply Management (ISM) flashed stagflation warning signs. The two surveys diverged a bit on the details—manufacturing appeared stronger and services weaker in the former compared with the latter—but both agreed growth is now at a near standstill after blistering results last year.

Taken together, this means China’s economy continues to tread water, and that of the U.S. has rapidly converged downward in the same direction. That makes it hardly surprising to see worldwide economic activity growth slow to the weakest in 17 months in April, according to S&P Global and JPMorgan global PMI statistics.

Stock markets have scored runaway gains since the S&P 500 crashed to a 15-month low last month. That has reset them back to levels preceding Trump’s so-called “Liberation Day” unveiling of sweeping tariff hikes. The sell-off of close to 10% preceding it from mid-February highs was about recession fears. Those may be back before long.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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