U.S. and Chinese trade negotiators agreed over the weekend to lower mutually imposed triple-digit tariffs in a significant de-escalation of the ongoing trade war between Washington, D.C., and Beijing.
Treasury Secretary Scott Bessent said Sunday after talks in Switzerland that “substantial progress” had been made between the two countries.
China and the U.S. agreed to suspend their reciprocal tariffs for 90 days to continue negotiations.
The U.S. dropped its baseline tariff rate on Chinese goods from 145 percent to 30 percent, which includes a 20 percent import tax Trump imposed during his first term and another 10 percent import tax levied in February as a response to fentanyl imports.
China agreed to lower its tariff to 10 percent from 125 percent.
Analysts say the U.S. baseline 30-percent tariff likely stacks on top of pre-existing Section 301 tariffs for an effective rate of up to 55 percent for some sector-specific goods.
The U.S. and China released a positively-toned joint statement after weekend talks about the importance of “a sustainable, long-term, and mutually beneficial economic and trade relationship.”
Analysts are viewing the de-escalation as a halftime break in initial negotiations. Here are five takeaways on the preliminary arrangement and what it means politically and economically.
Another major policy reversal
The preliminary agreement is another major course correction on trade from the Trump administration.
While the stock market leaped up on news of progress in the talks, yields in the bond market also jumped, suggesting further financial uncertainty resulting from another substantial policy change from the Trump administration.
The triple-digit reduction in the overall tariff rate on China follows a series of similar about-faces. Moves on tariffs have played double duty as both economic policy and bartering chips in bilateral trade talks.
“What this agreement doesn’t mean is that tensions between the US and China won’t continue to flare or that Trump is done causing economic uncertainty with the use of his favorite go-to tool, tariffs,” consultants for Beacon Policy Advisers wrote in a Monday analysis.
Other recent U-turns on trade have included the cancellation, reinstatement, and subsequent reinstallation of the de minimis tariff exemption on China for commercial shipments worth $800 or less; broad-based 25-percent tariffs on Canada and Mexico, most of which then reverted to terms of the pre-existing U.S.-Mexico-Canada free trade agreement (USMCA); and a 90-day pause in Trump’s country-specific “reciprocal” tariffs, which involved a novel calculation based on trade deficits with the U.S.
Bessent acknowledged the limited the scope of the early truce, but insisted it was an important step to a broader deal.
“We got a lot done over two days, so I would imagine in the next few weeks we will be meeting again to get rolling on a more fulsome agreement,” Bessent said on CNBC’s “Squawk Box.”
“We had a plan, we had a process, and now what we have with the Chinese is a mechanism to avoid an upward tariff pressure, like we did last time,” Bessent said.
A de-escalation without specific concessions
The deal struck by Bessent, U.S. Trade Representative Jamieson Greer, and Chinese Vice Premier He Lifeng is limited to the reciprocal tariffs that China and the U.S. imposed on each other and comes without any industry-specific policy changes.
Neither China nor the U.S. made any concessions to get the other sides’ tariffs dropped. Those particulars would constitute the meat of any forthcoming trade deal after the initial posturing.
Trade experts on Monday emphasized the relatively modest scale of what has been agreed to so far.
“The new tariffs on China are 30 percent on about 1.2 [percentage points] of U.S. trade [and] 20 percent (the fentanyl IEEPA case) on 0.3 [points] of U.S. trade, so a ‘just pay it’ cost of just over 0.4 [percentage points] of U.S. GDP,” Council on Foreign Relations senior fellow Brad Setser wrote in a commentary.
Setser noted the economic pressure the reduced tariffs will still have on the semiconductor sector.
The deal follows another preliminary trade agreement announced last week between the U.S. and the United Kingdom that many saw as especially beneficial to U.K. automakers.
“The agreement announced today to reduce tariffs on UK car exports into the US is great news for the industry and consumers,” Mike Hawes, chief executive of British industry group SMMT, said in a statement last week.
Top Democratic lawmakers, who are no fans of Trump’s sweeping tariff agenda, nonetheless accused the president of backing down without a win.
“Sadly, it looks like China once again got the better of Trump. Another example of Trump chaos. He has one policy one day, one the next. Who knows what it’ll be tomorrow,” Senate Minority Leader Charles Schumer (D-N.Y.) posted on the social media platform X.
Fentanyl tariffs remain in place
With the massive reciprocal tariffs scaled back to just 10 percent, attention is focusing on the tariff related to the synthetic opioid supply chain announced on March 3.
The Trump administration levied that tariff because it said that China “has not taken adequate steps to alleviate the illicit drug crisis.”
“The 30 percent tariff on China’s exports is still much higher than tariffs on other countries and is still higher than at the turn of this year,” Principal Asset Management chief strategist Seema Shah wrote in an analysis. “Trade with China is still more expensive than it was six weeks ago, suggesting a sustained negative impact on consumer spending power [and] company profit margins.”
Wang Xiaohong, the Chinese security tsar in charge of fentanyl, was reportedly at the trade talks over the weekend in Switzerland, suggesting inroads into that issue are already being made.
Deal could get Chinese goods flowing into U.S. ports again
Activity at U.S. ports has dwindled as a result of the tariffs, with shipments being canceled and workers being furloughed.
Port of Los Angeles director Gene Seroka told a radio station last week that they were bracing for a 35-percent drop in volume.
“It’s the first arrival of container ships where the tariff was applied just last month,” he said.
Business lobbies say that the tariff reduction amounts to the reversal of “embargo-level” tariffs.
The U.S. Chamber of Commerce, said it welcomed news that “both China and the U.S. will pull back from embargo-level tariffs.”
“Even with this China agreement, tariffs are much higher overall than they were at the beginning of the year, and many businesses … are dealing with growing costs and disruptions,” the group said in a Monday statement.
Markets respond positively, but uncertainty remains for capital expenditures
Stocks surged Monday morning on news of the deal, with the S&P 500 index of reaching its March 25 level — the day before stocks started cratering after the announcement of Trump’s auto tariffs, and then snowballed on April 2 after the announcement of dozens of country-specific import taxes.
The Dow Jones Industrial Average closed with a gain of 1,160 points Monday, rising 2.8 percent on the day The technology-heavy Nasdaq Composite closed up more than 4.4 percent.
West Texas Intermediate crude oil prices were more than a $1.20 per barrel, or 1.97 percent, as of 1:35PM U.S. eastern time. The DXY dollar index popped more than 1.5 percent in midday trading, and the VIX volatility index below 20 for the first time since late March.
