The U.S.-China trade war has generated global headlines, and rightfully so. This 21st century trade war intensifies when each country continues to enact tariffs and retaliatory actions on the other. This conflict, which climaxed in April, has had severe economic consequences for both countries. As of May, a steep increase on bilateral tariffs has occurred. This decision represents a fragile peace between the two political and now economic titans. The longer-term implications of this recent truce, though encouraging for bilateral trade, are far from clear.
With the 90-day tariff truce coming to an end, analysts are anxiously watching to see where things will go from here. The first exchange of tariffs in tit-for-tat style led both China and the U.S. to tread more carefully with any further tariffing going forward. Economists from Standard Chartered note that the existing conditions suggest a tendency toward restraint from both the US and China moving forward.
Israeli analysts expect the truce to be renewed. Combined with this extension, 12 months or more of further discussions might be in the cards, reducing the likelihood of any quick tariff increases. Even assuming current average tariff levels hold, that could create a more favorable environment for increased bilateral trade.
This is where China’s current $491 billion stimulus package comes into play in offsetting tariffs’ effects on its economy. As per Standard Chartered’s economists, this is just the stimulus needed to outweigh the negative impact caused by tariffs. They state, “With our baseline assumption on tariffs, we maintain our 2025 GDP growth forecast at 4.8%. China’s existing stimulus package is likely to largely offset the tariff impact.”
Yet despite these rosy predictions, the trade path after the 90-day truce ends stays unclear. The US should take this opportunity to engage in such negotiations with other key trade partners. This has the potential to deepen the already complicated relationship between the two nations. The tariff delay on the rest of the countries will lapse a full month before the China reprieve. This controversial move creates a whole new layer of complexity to already-dicey US trade policy.
“The trade trajectory following the end of the US-China 90-day tariff truce remains uncertain. Our baseline assumption is that the truce will likely be extended further and that average tariff levels may remain around current rates. This approach would allow the continued flow of bilateral trade between the two nations and buy more time for negotiations on more complex and contentious issues.” – Standard Chartered’s economists
The consensus among financial experts is that if the US decides to implement significant tariff increases beyond current levels, additional fiscal support will likely be necessary to stabilize economic growth. As Standard Chartered’s economists remark, “If the US hikes tariffs much higher than our baseline assumption, imposes other significant non-tariff measures against China, or if China’s housing market and consumption recovery falls short of expectations, additional fiscal support will likely be rolled out to prevent GDP growth from undershooting the growth target significantly.”
The next few weeks will be vital as both countries prepare to re-establish their trade dialogue under rapidly changing domestic and global economic conditions. Continued negotiation and dialogue may change the outcome for the better, for both countries and for the world. Their result could have major consequences for the future of global trade relations as well.