Dive Brief:

• Treasury Secretary Scott Bessent said Wednesday that he sees the prospect that a sweeping agreement winds down the trade war with China, which currently faces the highest tariffs among dozens of U.S. trade partners.
• “There is an opportunity for a big deal here,” Bessent said, answering a question after a speech in Washington. “This is an incredible opportunity.”
• President Donald Trump, aiming to revive U.S. manufacturing and correct global trade and financial imbalances, seeks to nudge Beijing into shifting toward an economy fueled more by domestic consumption and less by exports and investment in manufacturing, Bessent said. “Sometimes it takes an external push,” he added, referring to Trump’s announcement this month of 145% tariffs on imports from China.

Dive Insight:

Bessent pointed to the prospect for settlement after Trump suggested flexibility in the trade wrangle with China, the world’s second largest economy after the U.S.

U.S. tariffs “will come down substantially but it won’t be zero,” Trump said Tuesday, adding that he sees no need to “play hardball” with Xi Jinping, China’s leader. “We’re going to be very good to China,” he said, predicting “they’re going to be happy.”

Bessent said that the U.S. wants China to provide a schedule and achieve measurable progress for a foundational shift in its economy toward consumption-led growth. Such change would spur demand for U.S. exports and narrow the trade gap between the two countries.

“We want to see results and we want to see timelines,” Bessent said. After his speech, he said the Trump administration had not offered to unilaterally cut import duties on goods from China, according to Bloomberg.

The U.S. since at least 2006 has urged Beijing to reduce the bilateral trade gap by spurring domestic consumption. The goal was an impetus for the creation of the U.S.-China Strategic Economic Dialogue that year under former Treasury Secretary Hank Paulson.

Bessent said Wednesday that Beijing is moving away from that objective.

“Recent data shows the Chinese economy tilting even further away from consumption toward manufacturing,” Bessent said. “China’s economic system, with growth driven by manufacturing exports, will continue to create even more serious imbalances with its trading partners if the status quo is allowed to continue.”

Rather than boost domestic demand, Beijing seeks to overcome its economic challenges by exporting excess production of manufactured goods, an “unsustainable” approach that harms China and the entire world, Bessent said.

“China needs to change. The country knows it needs to change. Everyone knows it needs to change,” Bessent said. “And we want to help it change — because we need rebalancing too,” he said, noting the imperative to reduce U.S. borrowing and federal debt.

The economic stakes are rising from Trump tariffs, which target virtually every U.S. trading partner along with China.

The International Monetary Fund on Tuesday, citing conflict over global trade, downgraded its forecast for U.S. growth this year to 1.8% from 2.7% in January.

The global economy in 2025 will likely expand 2.8%, or 0.5 percentage point less than projected in January, the IMF said.

Economists at a growing number of organizations, including JPMorgan Chase and Citigroup, predict that the Trump-initiated trade war will push the U.S. into a recession.

The Peterson Institute for International Economics sees 65% odds of a downturn during the next 12 months.