The deal between the US and China to reduce for 90 days the tariffs recently imposed on imports of each other’s goods is tentatively positive for global trade, but the situation remains unpredictable, according to an industry analyst.
The agreement, announced today (May 12) represents a major de-escalation of the dispute between the two countries – at least temporarily – and has seen global stock prices rise as a result. It will see the US and China cut their tariffs on each other by 115pp, from 145% to 30% for Chinese goods entering the US and from 125% to 10% on some US goods entering China.
In a joint statement, the two countries acknowledged “the importance of their bilateral economic and trade relationship to both countries and the global economy” and “the importance of a sustainable, long-term, and mutually beneficial economic and trade relationship”.
The statement added that, once the pause in tariffs is enacted from May 14, the US and China “will establish a mechanism to continue discussions about economic and trade relations.”
Of this, Steve Blitz, chief US economist and managing director for global/macro at TS Lombard, told Investment Monitor: “It’s obviously positive. Let’s take the politics out of it for a second. If you turn it into a microeconomic or a game-theoretic point, there is an optimal tariff price. So, what do you want to achieve with a tariff?
“You don’t want to stop trade, so you don’t want an infinite tariff, but your objective is to make it more expensive to source from a particular country in order to really do two things: one is to shift production to the US, or make it more competitive for us exporters in the global world. So you are actually putting in a tariff for a positive trade outcome as opposed to a negative trade outcome.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData“But you don’t want to necessarily negotiate to zero tariffs everywhere, and we’ll use the broad word tariffs, so we’ll include non-tariff barriers, OK. You don’t want to get to zero because you also want to bring cash into the government.”
US-China trade war
The spiralling tit-for-tat tariffs that the US and China had placed on each other’s goods were a result of the sweeping tariffs agenda being pursued by the new administration in the US when Donald Trump returned to office for his second term in January.
This has seen 25% fees placed on goods coming from Mexico and Canada, as well as a slate of so-called ‘reciprocal tariffs’ for most countries around the world. These are purportedly aimed at addressing US trade deficits, which Trump has claimed are “unfair”. Trump’s other stated aims for the tariffs include generating revenue to lower domestic taxes and encouraging the onshoring of industry.
The result of introducing such sweeping tariffs on trade partners almost across the board will be an upending of global trade, with ramifications not just for the US and each of its trade partners but for trade flows outside of US trade relationships.
In April, Peter Swartz, the chief science officer of supply chain insights company Altana told Investment Monitor that the upheaval being wrought by the proposed tariffs represented “a very intense moment of deglobalisation”.
Swartz noted that this shift towards protectionism has already been going on for over a decade and is “an inevitable product of the geopolitical stresses on the global system,” with factors like the Covid-19 pandemic and geopolitical disputes at play.
He acknowledged, though, that the tariffs agenda of the Trump administration represents an inflection point, adding: “Where we think it’s going is you will see that more multipolar world. You’ll see that world in which, fundamentally, the world is fragmenting into blocks.
“I can’t tell you which specific blocks – what those blocks will look like. Your readers can read the news as well as I can. But what I can tell you is that it will not look like the previous era of easy global free trade across the entire planet, and what it will instead look like is more complexity, more regulation, and, really, a reordering, and there’s the opportunity to thrive in that.”
Swartz’s outlook aligns closely with assertions in a number of recently published reports from Investment Monitor’s parent company GlobalData variously suggesting that “the era of easy, frictionless supply chains is over“, that Trump’s tariffs will “further disrupt global supply chains“ but that a silver lining may be “the potential strengthening of regional and inter-regional trade ties outside the US,” and that China is seeking to “expand its influence across developing markets … with further fragmentation of global supply chains and even the creation of separate technospheres with competing standards.”
Uncertainty remains
Subsequent to today’s joint statement, the White House released a separate statement calling the agreement “a historic trade win for the United States”.
It added: “For too long, unfair trade practices and America’s massive trade deficit with China have fuelled the offshoring of American jobs and the decline of our manufacturing sector.”
The statement noted that the US’ trade deficit with China was the largest with any trading partner in 2024 at $295.4bn, and it stated that the agreement “works toward addressing these imbalances to deliver real, lasting benefits to American workers, famers, and businesses.”
However, the landscape remains unclear for businesses and, indeed, entire sectors in part while there are pauses to the implementation of tariffs for negotiations and in part simply for the involvement of Trump himself.
“You’re dealing with somebody who gets bored and moves to the next thing, and then he comes back and he doesn’t like the progress so he decides to shake it up a little bit,” Blitz said. “So, I think we’re in a sweet spot right now, let’s enjoy it. Let’s not be the killjoy, but the thing that you’re at the same time in this mode, where [to think that] everything’s going to settle down and now iterate through a solution without any further histrionics or changes is probably wrong.”
Navigate the shifting tariff landscape with real-time data and market-leading analysis. Request a free demo of GlobalData’s Strategic Intelligence here.
