The United States and China may have just agreed to a short-term truce in their long-term trade war. They will suspend most of the mutually imposed tariffs that have been stretching their burgeoning economic relationship. After a difficult series of negotiations, the two countries reached a historic commitment. They committed to rolling back a combined 115 percentage points in tariffs within the next 90 days. This deal might become a historical milestone in the long-running clash. It’s done so by completely upending global supply chains and pushing tariffs to their highest point in history.
Under the Trump administration, the U.S. enacted large tariffs on imports from China, Russia, Myanmar, and several other countries. Of the four, China received the harshest punishment. At the same time, the U.S. unilaterally raised tariffs on Chinese imports to a jaw dropping 145%. In retaliation, Beijing struck back with a 125% tariff on American goods. This escalating game of chicken had resulted in major disruptions to trade flows, harming businesses and American consumers in the process.
In a brief, formal announcement, U.S. Trade Representative Jamieson Greer made it official that they’d reached an agreement to cut the tariffs. Meanwhile, the U.S. will reduce its average tariff on Chinese goods from 145% to 30%. In retaliation, China has agreed to lower its tariff on U.S. goods to China from a high of 125% to 10%. Given the recent instability and tension in the US-China relationship, this large cut is a significant and welcome move in the right direction.
In addition, China agreed to suspend or eliminate additional measures taken since April 2 to retaliate against U.S. tariffs. The overall package removes tariffs on 91% of each other’s goods. Finally, it swaps out another 24% of tariffs over the next three months. This indefinite suspension throws the door wide open to future contentious relations. Either way, both sides are playing it safe in their predictions over what’s next after this stopgap renewal.
The accord has been greeted with a euphoria in financial markets. For one, U.S. futures have skyrocketed more than 2%, and stock markets worldwide are reacting with glee. Investors see this action as a step toward de-escalation that may help stabilize the global economy.
“Businesses need predictability to maintain normal operations and make investment decisions. The chamber therefore hopes to see both sides continue to engage in dialogue to resolve differences, and avoid taking measures that will disrupt global trade and result in collateral damage for those caught in the cross-fire,” – Eskelund.
The European Union Chamber of Commerce in China welcomed the announcement, but said it was wary about its long-term impact. The chamber cautioned that the 90-day truce wouldn’t necessarily produce a real resolution of the trade war. They stressed that nothing is guaranteed or permanent.
As the discussions continued, each side made great efforts to focus attention on their mutual aim of preventing an outright economic decoupling. According to Bessent, a representative involved in discussions, “The consensus from both delegations this weekend is neither side wants a decoupling.” This sentiment by both leaders is a testament to the long, complex history of diplomatic relations between the two countries.
These negotiations are occurring amidst the ugly backdrop of a deepening, and perhaps irreversible, trade war. The value of bilateral trade reached more than $660 billion last year. The 20% tariff on imported goods from China was meant to coerce Beijing. This whole strategy was about realizing that we need to pressure China to address the important problem of fentanyl flooding into the United States.
“And what had occurred with these very high tariff … was an embargo, the equivalent of an embargo. And neither side wants that. We do want trade,” – Bessent.
China’s Commerce Ministry joined the chorus of optimism, wishing for a more even-trading relationship in the years to come. “This initiative aligns with the expectations of producers and consumers in both countries and serves the interests of both nations as well as the common interests of the world,” they stated.
For all this tempered exuberance, experts caution there’s plenty of work left to do. The deal’s short-term nature could fuel new discord. That could change if additional negotiations fail to yield mutually beneficial results for both parties.
