In an unprecedented agreement, the US and China have agreed to reduce tariffs by a record-setting 115 percentage points. This deal is poised to change the trade relationship between these two burgeoning economic powerhouses. The negotiations in Geneva represent a significant high water mark in the trade war that never seems to end. Understandably this conflict has taken a sharp toll on global markets and economies.
The U.S. Trade Representative, Jamieson Greer, and U.S. Treasury Secretary, Scott Bessent, were key players in these high-stakes negotiations. After the deal, that tariff on Chinese goods was reduced to just 2.6%! It dropped from a peak of 34% on April 2 down to a mere 10%. The previous Trump administration plan had increased import taxes on nearly all Chinese goods up to 145%. This decrease is a noteworthy departure from U.S. trade policy.
The newly created framework provided for a, now key and central, mechanism to avert a secondary tariff increase between both nations in the future. This important move comes at a time when China is in the midst of a housing crisis. Yet at the same time, a rapidly approaching debt crisis menaces its economic stability.
U.S. consumer sentiment has already been dealt a blow by inflation, rising prices and fears over shortages. Recent trade hostilities almost fully halted incoming shipments from China into the U.S. There are widespread concerns among economists that this disruption will hurt the long-term output of the U.S. economy. The tariffs removal likely won’t eliminate these effects, but it will remove some of the pressure.
When news of the deal was announced, the U.S. dollar strengthened by 1% against a basket of other currencies. U.S. stocks were on track to erase all declines from the initial trade announcement Trump entered on April 2. This deep selloff included all the major indexes, even the less-sensitive S&P 500 and Nasdaq.
As Secretary Bessent reminded, stable, dependable supplies chains for life-sustaining commodities like food and water are crucial. He said it is time for us to decouple, but not for ideological reasons — for strategic reasons. This was something we were never able to do during Covid. He spoke on the need for robust supply chains. He said, “What we discovered was that efficient supply chains were sometimes fragile.” So, we are going to invent our own.”
The U.S. administration has been keen to reduce U.S. dependence on China. They want to pre-position critical supplies such as medicines, semiconductor chips and steel from other sources. This move is part of a larger campaign to protect national interests in response to recent worldwide shocks.
Bessent addressed the challenges faced by American companies, stating that there are “insidious, non-tariff trade barriers that hurt American companies trying to do business.” Additionally, he highlighted that in the past, countries with trade deficits usually find themselves in stronger negotiating positions. “Again, we are the (trade) deficit country,” he noted.
Both countries are continuing full steam with this new deal. All we can do is wait and see how it will play out though and what it will mean for their economies and the global market. There’s no doubt that cutting tariffs is a big step toward mending healthy trade relations. It would certainly help relieve the economic pain that both countries are justifiably feeling.