The United States and China have decided to extend their trade truce for another three months. This is seen as a positive and practical move towards reducing tension between the world’s two largest economies. Both countries are in the midst of negotiations for a deeper, more extensive trade pact. This deal at least increases the market access for U.S. businesses to operate within China. The temporary truce follows rounds of tit-for-tat tariffs. These tariffs eventually reached as high as 125% for the U.S. and 145% for China.
Through three weeks of negotiations this spring in Geneva, we came to consensus. This deal puts a bullseye on the enormous tariffs that have been devastating our international trading partners. Inevitably, U.S. tariffs fell, but only from their historical high point down to a still-large 30%. At the same time, China’s tariffs dropped from 25% to 10%. This was a major turning point in the year-long tit-for-tat trade war that has rattled global markets and economies.
Tariff Reductions and Trade Deficits
The latest cut in tariffs represents a major shift in U.S.-China trade relations. Prior to the deal, the U.S. had used punitive tariffs on a large swath of Chinese goods, reaching as high as 125%. In retaliation, China struck back with tariffs up to 145% on American goods. In May, both countries came to understand just how destructive these tariffs were to their economies. Instead, they chose to raise them drastically.
Wall trade enforcement action but considering this, the U.S. has raised its average tariff over the past year by several orders of magnitude. It soared from about 2.5% at the beginning of 2023 to a shocking 18.6%, the worst rate since 1933. The result is that the United States has become a far more protectionist economy. Much of this decline can be attributed to the trade policies instituted by President Donald Trump’s administration. U.S.-China trade imbalance has grown to $262 billion last year, revealing the lopsided nature of trade flows between the two countries.
The cutting of tariffs is more than a gesture of goodwill, rather a move to calm increasingly strained economic ties. The U.S. has recently reversed export restrictions on computer chip technology and ethane, a key feedstock in petrochemical manufacturing. In exchange, China will reduce barriers to U.S. companies’ access to rare earth materials. These materials, in turn, are critical to a number of advanced industries.
Implications for Future Negotiations
Ali Wyne, a fellow on U.S.-China relations at the International Crisis Group, points to the crux of the problem. Here’s why he says the Trump administration’s trade negotiation strategy has revealed the limits of unilateral U.S. leverage.
“By overestimating the ability of steep tariffs to induce economic concessions from China, the Trump administration has not only underscored the limits of unilateral U.S. leverage, but also given Beijing grounds for believing that it can indefinitely enjoy the upper hand in subsequent talks with Washington by threatening to curtail rare earth exports.” – Ali Wyne
This perspective emphasizes the need for a more collaborative approach in future negotiations, as both countries navigate complex economic interdependencies.
U.S. businesses and lawmakers in both countries are especially keen on a timely resolution that would address trade barriers that hamper agriculture and energy exports. Sean Stein, an industry expert, illustrated the need to take immediate action on targeted trade concerns.
“Securing an agreement on fentanyl that leads to a reduction in U.S. tariffs and a rollback of China’s retaliatory measures is acutely needed to restart U.S. agriculture and energy exports.” – Sean Stein
The Road Ahead
As the clock ticks on the newly extended 90-day truce, both nations face the critical task of finalizing a trade agreement that satisfies their economic interests while promoting stability in global markets. The recent tariff rollbacks are encouraging, but this alone may not be enough to address the deeper tensions at play.
We hope negotiators from both sides will pursue ongoing talks focused on delivering enduring solutions that benefits both sides’ economic prosperity. Those first three months will be very telling. More importantly, they will determine if this fragile truce can evolve into a long-term trade accord that serves the interests of both countries.
