China This Week | China escapes US tariffs amid ongoing talks, a new baby subsidy, and Taiwan

After Taiwan’s President Lai Ching-te delayed a trip to Central America, some reports claimed the decision stemmed from the US government’s opposition to his plan for a stopover in the country — something that Taiwanese leaders have long done, most recently in December 2024. China claims Taiwan as its own territory.

Here is a closer look at these developments.

1. Latest round of US-China trade talks

This was the third set of talks between officials, with the first two also held in Europe (Switzerland and the UK, respectively). The Geneva meeting saw US tariffs on Chinese goods reduced from 145% to 30%, while China’s retaliatory tariffs dropped from 125% to 10%.

Another round of talks in London in June helped reiterate these commitments, when it seemed that certain sticking points were threatening the deal. DW reported that “A core element of the standoff revolves around China’s dominance over rare earth materials and US restrictions on AI chip exports.”

UPSHOT: The Stockholm talks were aimed at removing existing roadblocks, but it is unclear what progress was made. Reuters reported that lengthy discussions were held on the US and Chinese economies, emphasising “the need for China to shift away from a state-led, export-driven manufacturing economy to one powered by increased consumer demand, which would help US exports.”

This is something Chinese officials have also reiterated of late, but actually doing so would be a task for a country that accounts for around 30% of global manufacturing.

Another long-term issue is the US concern over the role of Chinese companies in supplying precursor chemicals to manufacture the fentanyl opioid, whose illegal use has claimed many lives in the country. The US has continued with its 20% fentanyl-related tariffs on China, while China has taken some steps to crack down on some of its firms making restricted chemicals.

China also figured in Trump’s recent social media tirade against India. “They (India) have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD!” said a part of Trump’s post.

He had said earlier in the week that he may go to China but only at the invitation of Chinese President Xi Jinping, and it “had been extended”.

2. China’s subsidies aimed at boosting birth rate

The Chinese Communist Party mouthpiece Global Times described the 3,600 yuan (about $503 US or Rs 44,000) annual subsidy for each child under the age of three as “groundbreaking”. It is certainly huge in its scope, covering not just children born after January 2025 but also applying retroactively to children currently under three years old.

Guo Yanhong, deputy head of the National Health Commission, was quoted in state media agency Xinhua as saying it was aimed at easing the financial burden of raising children for families. She said it “works in tandem with related policies regarding childcare, education, employment, taxation and housing.”

UPSHOT: A slew of measures have been introduced in the last few years to boost birth rates in China, in the face of stark data. Since 2016, the Total Fertility Rate or TFR (the number of children a woman, on average, is expected to bear in her lifetime) has been falling.

Part of it has to do with the introduction of the one-child policy in 1980, which restricted couples to having only one child or face harsh penalties. While this policy ended in 2016, it left lasting effects. Additional factors such as women’s improved social status, greater prosperity in society, economic pressures, etc., have also contributed to the decline.

The decline in population, seen in the declining numbers of kindergartens or creches in the country, has grave implications for the Chinese economy. Already, the one-child policy has led to what is called a “4-2-1” structure, in which two sets of grandparents and one set of parents are dependent on one child in their old age. Like everywhere else in the world, raising birth rates is a complex challenge that requires more than just economic solutions.

3. Tough week for Taiwan

Two important developments concerning Taiwan indicate the changing nature of US-Taiwan ties.

First, the Financial Times reported that the Trump administration denied permission for Lai to stop in New York en route to Central America, “after China raised objections with Washington about the visit.” Officially, Taiwan has denied this. Such visits had previously been a bone of contention between the US and China.

An official visit to the US from a Taiwanese leader would be seen as violating the “One-China” principle, which says that any country hoping to form diplomatic ties with China cannot recognise Taiwanese independence.

Taiwanese leaders have, therefore, gone on “transit” visits, using the US only as a stopover to travel to countries that accord Taiwan diplomatic recognition. Eleven countries, mostly in Latin America, and the Vatican currently recognise Taiwan.

Second, despite Taiwan being the world’s foremost chip manufacturer (semiconductors or chips are crucial for manufacturing electronics), and one of the first countries to start talks with the US after Trump’s “Liberation Day” tariffs in April, it was hit with 20% tariffs this week.

UPSHOT: That even the watered-down version of a US visit was reportedly denied to the Taiwanese President, and that tariffs remained relatively high despite promises of hundreds of billions in investments into the US from Taiwan, sends a signal.

A report in the South China Morning Post said: “Washington was demanding that Taiwan match the investment commitments made by Japan and South Korea – US$550 billion and US$350 billion respectively – to qualify for the 15 per cent tariff tier.” Taiwan is reportedly considering a $300-400 billion package, “equivalent to four years of the island’s central government budget.”

Analysts have interpreted these actions as the US working to ensure there is no souring of the mood in China due to its dealings with Taiwan. This, as has often been the case under Trump, goes against decades of US policy, which saw a strategic interest in Taiwan.