In an unprecedented realignment of foreign trade policy, on Monday US President Donald Trump signed an Executive Order. This move delays the imposition of tariffs on various Chinese products by another 90 days. This extension was released just a few hours before the original pause was set to expire at midnight local time in Beijing. This ruling could have far-reaching consequences on the economic dialogue currently taking place between the two countries.
The U.S. has placed a punitive 30 percent tariff on Chinese made goods. In return, Beijing has countered dollar-for-dollar with their own 10 percent Americans goods levy. If the impending tariff deadline hadn’t been extended, duties on Chinese imports would have skyrocketed. We might have been looking at a scary surcharge of 145 percent!
Negotiations and Agreements
In mid-May US and Chinese negotiators met in Geneva, Switzerland. Wanting to de-escalate, they took the unusual step of agreeing to pause tariffs by lowering the tariff rate temporarily and mutually. The last extension handed both countries additional time to work together. Their efforts are oriented on a high standard agreement that addresses the 21st century trade agenda.
As Kelly Ann Shaw reminded us, negotiations are inherently adversarial and conflictual. She pointed out that the timing plays right into the typical playbook seen in Trumpian-style negotiations.
“It wouldn’t be a Trump-style negotiation if it didn’t go right down to the wire.” – Kelly Ann Shaw
Further discussions by policymakers in Stockholm in recent weeks highlight the timeliness of reaching an agreement that meets the interests of both parties. While the extension doesn’t address all issues, it should help calm many fears as talks continue.
Impact on Markets and Economies
After the announcement of the tariff extension, reactions were filled with cautious optimism. Ryan Majerus noted that this development could reduce anxiety among investors and stakeholders in both countries. He noted that the extension gives essential time to tackle some of the administration’s longest-standing trade complaints.
“This will undoubtedly lower anxiety on both sides as talks continue, and as the US and China work toward a framework deal in the fall.” – Ryan Majerus
Despite this largely positive picture overall, market reactions have been decidedly mixed. The Dow Jones Industrial Average saw a decline of approximately 0.4 percent at 3:30 pm in New York, reflecting ongoing uncertainty in the financial markets.
Future Considerations
As long as negotiations are underway, though, Donald Trump will keep the final say even if the tariff pause is temporarily extended further. He tried to take credit for how tough he was on China, often referring to the fact that he developed a terrific relationship with President Xi Jinping.
“We’ll see what happens. They’ve been dealing quite nicely. The relationship is very good with President Xi and myself.” – Donald Trump
China’s response has shown that they, too, are open to the possibility of working on their own trade agreements. Lin Jian said that he is especially hopeful that the United States will keep to his agreements from the recent back-and-forth between state leaders.
“We hope that the US will work with China to follow the important consensus reached during the phone call between the two heads of state.” – Lin Jian
So are both countries committed to producing results based on fairness and win-win cooperation. The coming months will be critical in defining their future trade relations.
