Trade truce with China is hailed, but it may not be enough to stop shortages
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- The temporary truce will see the United States lower tariffs on Chinese imports to 30% and China reduce its import duties on U.S. goods to 10%, starting Wednesday.
- Supply shortages and price increases on Chinese products may still hit American consumers in the coming weeks, experts said.
WASHINGTON — China and the United States retreated from an emerging economic crisis on Monday, agreeing to drastically reduce tariffs on each other for the next 90 days as they continue to negotiate a more permanent trade deal, providing welcome news for investors and retailers who increasingly feared a breakthrough was out of reach.
The temporary truce will see the United States lower tariffs on Chinese imports to 30% from 145%, and China reduce its import duties on U.S. goods to 10% from 125%, starting Wednesday. Wall Street rejoiced at the announcement of a deal, with the Dow Jones industrial average up 2.81%, the Standard & Poor’s 500 up 3.26%, and the Nasdaq up 4.35%, the largest market rally since President Trump last walked back rate hikes on other countries in mid-April.
Trump referred to the development as a “total reset with China.” But the end result of the provisional agreement is a return to tariff rates that were in place before the president launched a global trade war on April 2, in what he called “Liberation Day” — a move that brought the largest decline in commercial shipping traffic since the COVID-19 pandemic and prompted financial institutions to warn of an imminent recession.
Supply shortages and price increases on Chinese products may still hit American consumers in the coming weeks, a lingering effect of weeks of uncertainty, experts said. Many retailers have already increased their prices. And shipping costs are expected to skyrocket as manufacturers and wholesalers attempt to make up for lost time. The 90-day deadline for a more lasting trade deal could fuel further market volatility in the coming weeks.
Although the White House called the trade deal a ‘milestone,’ U.S. officials also described it as merely the ‘end of the beginning’ of talks involving the trade relationship with Britain.
Trump’s Treasury secretary, Scott Bessent, who led the negotiations with Beijing, also secured a commitment from China to cut non-tariff barriers it had put in place after April 2, including certain import restrictions and blacklisting of U.S. companies.
“It de-escalates trade tensions and reduces the probability of a stagflation,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University and a former commissioner at the Port of Los Angeles, referring to a phenomenon feared the world over by economists: a combination of slow economic growth, high inflation and increasing unemployment. “But this is a temporary truce. A tough road is ahead of us.”
Over the next three months, the Trump administration says it intends to develop a “mechanism” that will “rebalance” the U.S. trade relationship with China — a task that has eluded presidents for decades. Trump hopes to change Beijing’s policy of providing government subsidies to state-owned enterprises and to reduce a $400-billion U.S. trade deficit with China, both tall orders in such a short time frame.
“Supply chains have been disrupted and there are a lot fewer ships sailing the ocean,” Sohn added. “Supplies in stores won’t be as plentiful as it used to be. During the back-to-school season, for example, there will be shortages, stockouts and higher prices. If the negotiation progresses well, there will be more merchandise at retail stores for back-to-school and Christmas.”
After the deal concluded in Geneva, Bessent said he would draw inspiration in the upcoming talks from a preliminary agreement negotiated with Beijing at the end of the first Trump administration called Phase One, which included new rules governing the exchange of intellectual property, technology transfer and financial services. Bessent claimed that deal was not enforced by the Biden administration.
But the Treasury secretary acknowledged that the upcoming talks would be difficult. “Neither side wants a decoupling,” he said.
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“I don’t think anything’s going to be easy, because this has been going on for a long time,” Bessent told CNBC.
Before departing for an official visit to the Middle East, Trump said he expected to speak with Chinese President Xi Jinping and praised the agreement as a temporary step toward a permanent deal. The truce, Trump added, does not include tariffs on cars, steel and aluminum.
He also spoke with Apple Chief Executive Tim Cook shortly after announcing the deal, Trump said.
“The relationship is very good. We’re not looking to hurt China — China was being hurt very badly,” the president told reporters at the White House. “They were very happy to be able to do something with us.”
Trump said that pharmaceuticals may also be exempt from tariff reductions with China going forward, speaking at a signing ceremony for an executive order aimed at lowering drug prices.
The majority of the world’s pharmaceuticals are manufactured in China and India. But Trump reserved his harshest critique at the event for the European Union, which produces several high-profile drugs, including Ozempic and Wegovy, weight loss medications that Trump said are heavily overpriced in the United States.
“The European Union is in many ways nastier than China,” Trump said, adding: “We’ve just started with them.
“We have all the cards,” he said. “They treated us very unfairly.”
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