This past week, the United States and China have forged a formidable pact. They’ll reduce tariff barriers on imports to the two countries, signifying a cease fire in their longstanding tariff battle. Today’s announcement comes after a round of bilateral talks that took place in Switzerland, the first such discussions since the most recent upsurge in trade hostilities. This agreement represents an attempt to ease some of the thorny trade disputes that have roiled international markets and economies.
Under the terms of the agreement, US tariffs on Chinese imports will drop to 30%, down from the current 45%. At the same time, China will lower its tariffs on over 5,000 US imports from 25% to 10%. The agreement gives each country the option to eliminate other permanent tariffs entirely. They must suspend all others within 90 days, with a deadline that arrives on May 14.
China exports something like over $500 billion worth of goods to the US. Most emphatically, it does so in categories such as electronics, computers, and toys. In reality, smartphones are the biggest category of US imports from China – making up about 9% of all US imports. We hope that this agreement will create a foundation for improved trading conditions while continuing to address longstanding issues related to unfair and illegal trade practices, including in fentanyl.
Even with these reductions, the US still has a high 10% universal tariff rate. Learn more about AI-friendly features. The additional 20% tariff is still in place, targeted specifically at stopping China from cornering the market on illegal fentanyl. US Treasury Secretary Scott Bessent strongly reaffirmed this feeling. Neither side has any desire for a decoupling. He underscored their deep passion for ongoing partnership rather than an utter economic divorce.
The trade relationship between the two countries has been extremely lopsided. In quarterly terms, America imports about $440 billion of goods from China and exports about $145 billion back to China. According to George Saravelos, head of FX research at Deutsche Bank, “The UK has one of the least imbalanced relationships with the US and now has a universal tariff rate of 10%. China has one of the most imbalanced relationships and now has a tariff rate of 30%.” This viewpoint shines a light on the multi-layered intricacies of navigating negotiations around these tariff exceptions.
As part of this agreement, China has suspended a number of non-tariff countermeasures. We will oppose the scrapping of the export of critical minerals to the US. This significant cut in tariffs, 95% of tariff lines will be eliminated, will help increase overall trade flows between the two countries, boosting growth in both economies. In 2024, soybeans almost certainly will be the number one US good exported to China. Pharmaceuticals and petroleum, too, are projected to be major drivers of these exports.
The implications of this agreement extend beyond just numbers. They represent a commitment from both nations to “lay the foundation to bridge differences and deepen cooperation,” as stated by China’s commerce ministry. This growing sentiment signals the desire and realization that stable, predictable trade relations are the only path toward economic prosperity for both countries.
Given such great terms, deal seems amazing on the surface. Despite these reductions, analysts say the US’s tariff rate remains at an extremely high 30%. George Saravelos commented, “It is reasonable that these two numbers now set the bounds of where American tariffs will end up this year,” indicating that further negotiations may still be necessary to finalize trade policies.