The President's Daily Brief
PDB Situation Report | May 3rd, 2025: Economic Pain in Beijing & U.S.–Iran Negotiation Breakdown
Sat, 03 May 2025
In this episode of The PDB Situation Report: New signs of strain in the U.S.–China tariff war as Beijing weighs potential off-ramps amid economic fallout. Steve Yates from The Heritage Foundation joins us to explain China’s possible next moves. The fourth round of nuclear talks between the United States and Iran has been postponed—officially due to “logistics.” Former Deputy Assistant Secretary of Defense Frank Gaffney offers his take on what’s really behind the delay. To listen to the show ad-free, become a premium member of The President’s Daily Brief by visiting PDBPremium.com. Please remember to subscribe if you enjoyed this episode of The President's Daily Brief. YouTube: youtube.com/@presidentsdailybrief Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What is the main topic of this episode?
Welcome to the PDB Situation Report. I'm Mike Baker. Your eyes and ears on the world stage. All right, let's get briefed. We'll start things off today with the latest in the U.S.-China tariff war, perhaps you've heard about this, where both economies are starting to feel the heat, and Beijing may be quietly looking for an off-ramp.
Chapter 2: How is the US-China tariff war affecting both economies?
Steve Yates from the Heritage Foundation joins us to break it all down. Later in the show, a fourth round of nuclear talks between the U.S. and Iran has been abruptly, yeah, that's a good word for it, postponed, with both sides blaming logistics. Always was a logistical issue. Former Deputy Assistant Secretary of Defense Frank Gaffney, he stops by to give his insight on the negotiations.
But first, today's Situation Report Spotlight. The tariff war between the US and China is showing signs of strain on both sides. I think that's fair to say. In China, reports continue to emerge of factories slowing down and even shutting their doors altogether.
Chapter 3: What are the implications of China's tariff exemption list?
And in a quiet but telling move, Beijing is now circulating a 125% tariff exemption list to certain companies, trying to ease pressure on its economy without making a public concession in its ongoing fight with Washington. Back here in the U.S., the economy shrank at a 0.3% annual rate in the first quarter. That's the first contraction in three years.
Chapter 4: How is the US economy responding to the trade war?
Economists say the drop was driven in part by a surge of imports as companies scrambled to beat Trump's new tariffs. Both governments claim that they're open to negotiations, but neither looks ready to blink. And frankly, this is a game of who blinks first.
For more on this, let me bring in former Deputy National Security Advisor to the Vice President and Senior Research Fellow for China and National Security Policy at the Heritage Foundation, that's a mouthful, Steve Yates. Steve, thanks very much for joining us again. Thank you, Mike. It's great to be with you again. Thank you. Hopefully, you feel that way at the end of our discussion.
Let's start with the China-US trade war, of course. It's always been a matter of, with something like this, I think, of who blinks first. Do you think China's blinked?
Chapter 5: What is Steve Yates' perspective on China's strategy?
I don't think they've blinked. And I think there's actually something very different going on in China right now. Xi Jinping's been a different kind of leader. We've talked about that before. And there are a lot of off-ramps that were available to Xi Jinping where he might have even been able to improve terms with the United States.
I don't want him to, but those options were probably there if he'd have... Maybe used a little bit of conversation and sugar at the beginning of this administration and after these announcements. But at every turn, Xi Jinping has chosen escalation and confrontation and still is. So, I don't think they blinked yet. I do think they're under pressure. They just have a different kind of system.
And so, they have... warehouses that are getting too full and stuff not moving, ports that are getting empty. They're going to feel this, and they're going to feel it worse than we do.
The question is the tolerance within China for eating bitterness, as they say in Chinese, versus Americans, who might start seeing some pressure at the pump and change in supplies, and small businesses might get squeezed.
Do you think, going back to your comment that you started out with, where he's had an opportunity to de-escalate, or however you want to put it, but at every turn he's escalated, is that just simply a reflection of who's on the other side of the table, meaning President Trump and President Trump's tendency to be aggressive in something like this? So what I'm saying is, if it had been
somewhat different. Of course, we may not even be in this position because we wouldn't be looking to rebalance trade, which I think is absolutely the right thing to do. But I'm just wondering whether this is just a characteristic of the, perhaps of the Chinese mindset that if the person on the other side of the table is being aggressive, there's no way you can deescalate your position.
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Chapter 6: What challenges does the US face in negotiations with China?
Well, it's a fair test because there haven't been very many examples of Western leaders or counterparts to China that have been aggressive. For most of the last half century, the West has been pretty generous and accommodating, allowing China to skate under the radar as a developing economy, even though they're top tier on technology and eating our lunch. several different ways.
So it's a fair proposition to wonder. The main counter argument to the thesis is that there was a first Trump term. It wasn't like this in terms of the rakes of tariffs going up and other kinds of pressure. But at the same time, China hadn't been pressing quite the same in the first term either. Now, at the end of it, they did give us the gift of COVID.
and lied about it and there were consequences of that. But I think we're dealing with a more aggressive China now than even during Trump's first term. So to me, the dominant variable is Xi.
Trump definitely turned the temperature up and there aren't really any rules about how do you sort of reset the world in a post-globalization era where the World Trade Organization ain't working and you can't fix it.
uh yeah they've been eating our lunch from a technology perspective uh because they've been stealing everything yeah um subsidies yeah all kinds of stuff that you know the the past form of negotiation wasn't going to solve uh and it was getting to a point where i think it really was critical we had to change what we're doing.
I think the COVID was a wake up on supply chains in a number of different areas. And so just the accumulation kind of demanded a big hit of the reset button. But again, there just isn't much by way of a roadmap for what you fall back into.
And because we made these across the board tariffs to get others to make better deals and rebalance there too, there's a lot of confusion out there that's got to get settled. But the prize is trying to reset this relationship with China and lessen our dependency and make sure that the neighbors and others are part of the program with us.
But what could be the downside to doing this? Because I agree, we need to do this, right? It's absolutely necessary. And for too long, the regime, not the people, the regime, people always say, well, you shouldn't talk about the people. I'm not talking about the Chinese people. I'm talking about the regime under Xi Jinping and previous leaders.
You know, they've spent years, decades, right, clawing their way towards the top of the heap through the theft of intellectual property and economic information and research and development. But in trying to reset China, this relationship, what could be the downside? Obviously a hit to the economy, but what else do you think?
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Chapter 7: What are the potential consequences of resetting US-China relations?
Hours consumes a lot, drives a lot. And so this pain and disruption, it'll be felt in sort of the emotions of the stock market that go up and down. And so people will talk about, I lost this in my 501k, but 401k, I should say. This shows you how good I am at finance. But these things will come up, they'll come down, but they're coming down from a high watermark. And so we'll weather this.
A lot better than the Chinese do. If we keep making deals with Japan, Korea, Taiwan, India, if there's real movement in moving manufacturing, Apple's talked more about iPhones coming out of India more than from China.
I mean, the more these pieces move, China's leverage goes down, our supplies are diversified, and the president can reduce the tariffs and things kind of go back to normal post-globalization, post-WTO.
Okay. I want to follow up on that. But first, Steve, as you know, we have some terrific sponsors. But if you can stay right where you are, don't go anywhere. Unless you got to take a bathroom break, perhaps, in which case you can. But we take a quick break and then we'll be right back with Steve Yates from the Heritage Foundation. Hey, Mike Baker here. Now, here's an interesting fact.
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Chapter 8: How does the US plan to manage supply chains post-pandemic?
But I would expect with the non-China economies, we're getting down to low to not very consequential rates by mid-year to the fall latest.
Okay. Well, I certainly take your point that part of this in terms of what happens with China is dependent upon the US being able to negotiate these deals and get these agreements in place with economies like India, like China and others, South Korea. And we have to assume that that will be the case. There's a lot of impetus for that. Although, what do you make of the Chinese regime?
In a sense, it's almost a threat where they've reached out to some of our allies and said, watch out, be careful. We do not want you to be making these trade deals.
Yeah, well, it's just the kind of love that the Communist Party is so good at. They come and give you a nice hug, comrade, and sure hate for something bad to happen to your family. So just, you know, let's just smile for the cameras. And we're just a nice neighbor coming to say hello. But yeah. Don't make a deal with the Americans and better make sure it all works really well for us.
But the US is actually putting pressure on some of our partners and allies that are responsible for transshipment. And basically trying to make clear, China's giving you that burden. It's their... trade deficit that they're giving you to carry. And now you're getting grief from the United States about unbalanced trade, but it's China's unbalanced trade. So talk with us, work with us.
We understand what's going on. And as long as you talk and work with us, we'll try to make sure the pressure goes where it belongs, but we're not going to pretend it's not happening. And when it comes to this, I think there's a little bit of the criticism of Europe and about seeking economic advantage from the threat you want us to pay to protect you from.
And so, in Southeast Asia, they don't want to choose. But guess what? You're just going to have to choose. Do you want access to the big American market? And do you want Uncle Sam to balance against this clearly aggressive neighbor? If you don't think it's aggressive, again, I always come back to, look at them picking a fight with the Philippines. Who does that?
And so, if they're willing to pick a fight with the Philippines, Vietnam, you can't feel comfortable.
Yeah. Xi Jinping, he's like the Tony Soprano of the diplomatic world. Yeah. He's coming in and saying the envelope's a little light to all our allies. But look, again, I think if you... If we talk about, look, Target, Walmart, others, some of the big boxes have put out word that we expect that some of the shelves are going to look a little bare, prices may go up.
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