The United States and China took initial steps recently to cool the fire in their ongoing trade war. In response, they temporarily suspended scheduled increases in tariffs. The move comes as each country is working hard to stabilize their own nation’s economies – as fears of a worldwide recession loom large. As US administration officials have pointed out, it is ultimately buyer countries that win in trade wars when retaliatory tariffs are levied.
The US and China just upheld something very important. Most importantly, they will lower the so-called “reciprocal” tariff rate from 34% to 10% for no less than 90 days. This huge reduction constitutes a paradigm shifting win for trade. It arrives at a moment when the US is already feeling the economic bite of recent tariff rate increases. The initial US reaction was to impose steep, high triple-digit tariffs. In response to inflation, they’ve recently raised these rates to overly high levels, and then some, for a short-term three months.
That thaw started with the Iran negotiations in Lausanne, Switzerland. US Treasury Secretary Scott Bessent pictured during Chinese-U.S. Fortunately, the progress made in these conversations was more than anticipated, allowing for a path forward on a short-term deal. This announced provision is a big deal. China has been dealing with dire economic circumstance, including the threat of repeat 2008-style factory closures and a coming tsunami of massive unemployment.
We know China has retaliated – it’s done so in the past. Right now, they use a low baseline tariff of 10%, which is below what the rest of the world is using. The US sets a high combined tariff rate of 30%. This contains a specific 20% tariff aimed at stopping illegal fentanyl shipments that have poured across the border. The US has historically been completely opposed to the idea of countries being able to retaliate against illegal tariffs. Rather, it calls for a new paradigm that prioritizes collaboration over competition.
Yet even amid these recent positive developments, the long-term US-China relationship challenges—including deep mistrust—persist. Nothing binding has been agreed upon so far. The larger structural concerns fueling continual friction, particularly in areas of cutting-edge technology and industrial policy, are still left hanging. In summary, the US should tread very lightly and thoughtfully here. It aims to limit China’s rise in technological capabilities and innovation while keeping a stable economic environment in the United States.
The latest rollback of tariffs might just be the harbinger of a new, cautious optimism in international trade relations. What’s next It is still too early to tell how both nations will continue to tackle their fundamental differences in the future.