U.S. and China Agree to Temporarily Slash Tariffs to Ease Trade War Tensions

U.S. and China Agree to Temporarily Slash Tariffs to Ease Trade War Tensions

The United States and China have agreed to a 90-day tariff reduction, marking a significant step toward de-escalating a trade war that has shaken global markets.

Announced after weekend talks in Switzerland, the deal lowers U.S. tariffs on Chinese goods from 145% to 30% and Chinese tariffs on U.S. products from 125% to 10%. This temporary pause aims to stabilize economies and pave the way for further negotiations. Below is a detailed look at the background, recent events, China’s decision to agree, and who benefits from this agreement.

Background and Roots of the U.S.-China Trade War

The U.S.-China trade war began escalating in 2018 during President Donald Trump’s first term, when the U.S. imposed tariffs on Chinese goods to address a massive trade deficit and alleged unfair trade practices. By 2023, the U.S. imported $438 billion in goods from China while exporting only $143 billion, leaving a $295 billion deficit. Trump accused China of intellectual property theft, forced technology transfers, and subsidizing industries to undercut American businesses. China retaliated with tariffs on U.S. goods, particularly agricultural products like soybeans, impacting American farmers.

In January 2025, Trump, newly re-elected, intensified the trade war. He imposed a 20% tariff on Chinese goods, citing China’s failure to curb fentanyl precursor chemicals entering the U.S. On April 2, dubbed “Liberation Day,” Trump announced a universal 10% tariff on all imports, with China facing an additional 84% duty, which quickly rose to 145%. China responded with 125% tariffs on U.S. goods and restricted exports of rare earth elements critical for U.S. manufacturing. These tit-for-tat measures disrupted $650 billion in annual trade, halted supply chains, and sparked fears of global recession.

Events Leading to the Tariff Slash Agreement

Since April 2025, the trade war caused significant economic strain. U.S. retailers like Walmart and Target warned of empty shelves and higher prices, with electronic appliances—46.4% of U.S. imports from China in 2022—facing severe shortages. U.S. soybean exports to China plummeted 67% in mid-April, hitting farmers hard. China’s economy, already grappling with unemployment and deflation (consumer prices fell 0.1% in April), saw exports to the U.S. drop 20% year-over-year. Global markets swung wildly, with the S&P 500 losing trillions in value before recovering slightly.

Trump’s rhetoric softened in early May. On May 8, he posted on Truth Social, suggesting an 80% tariff on China was “right,” signaling openness to negotiation. Meanwhile, China’s Vice Foreign Minister Hua Chunying expressed confidence in managing trade issues. Behind closed doors, Chinese officials grew alarmed. Nomura estimated the trade war could cost China 16 million jobs, and developing nations couldn’t replace the U.S. market. Fears of isolation, as countries like Japan and Vietnam negotiated with the U.S., pushed China to act.

On May 9, U.S. Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng met in Geneva, hosted by Switzerland. The talks, the first face-to-face since Trump’s tariff blitz, were described as “candid” and “constructive.” By May 12, both sides announced the 90-day tariff pause, with U.S. duties dropping to 30% (including a 20% fentanyl-related tariff) and China’s to 10%. They also agreed to a consultation mechanism for ongoing talks, with Trump hinting at a future meeting with Chinese President Xi Jinping.

Why China Agreed to Slash Tariffs

China’s decision to negotiate stemmed from mounting economic pressure. The 145% U.S. tariffs crippled Chinese exporters, with freight bookings to the U.S. falling 30-60% in April. Factories closed, and unrest grew as unemployment rose. China’s central bank introduced monetary stimulus, but it wasn’t enough. Beijing also worried about losing global influence as trading partners secured deals with Washington. For instance, the U.K. struck a limited trade agreement with the U.S. on May 8, reducing tariffs on cars and steel.

Beijing initially resisted, with state media invoking Mao Zedong and vowing to “fight to the end.” However, Trump’s softened tone and U.S. outreach, including a late-April letter outlining fentanyl-related demands, shifted the dynamic. Though China rejected claims of subsidizing fentanyl precursors, it saw negotiations as a way to avoid further isolation. The Geneva talks offered a face-saving compromise: China could claim it was promoting global trade, while Trump could tout forcing Beijing to the table. The 90-day pause allowed China to stabilize its economy without appearing to capitulate.

Who Wins in the Tariff Pause?

The tariff reduction benefits both nations, but the balance tilts slightly toward China. Here’s a breakdown with data:

United States:

• Economic Relief: U.S. consumers avoid price hikes on Chinese goods like smartphones and appliances, which could have risen 30% due to tariffs. Retailers can restock inventories, averting holiday shortages.
• Market Surge: U.S. markets rallied on May 12, with the S&P 500 up 2.6%, the Dow Jones rising 2.5%, and the Nasdaq jumping 3.5%. This reflects eased recession fears.
• Farmers and Exporters: The pause may boost U.S. agricultural exports, particularly soybeans, which saw a 50% sales drop in April. However, China’s tariffs on U.S. farm goods remain, limiting gains.
• Strategic Win: Trump can claim he pressured China into negotiations, reinforcing his tough-on-trade image. However, the 30% tariff is still high, and no major concessions (e.g., on intellectual property) were secured.

China:

• Export Recovery: ING predicts China’s exports to the U.S. will “bounce back sharply” in May and June as importers resume orders. This could save millions of jobs and stabilize factories.
• Global Image: China positions itself as a defender of free trade, gaining favor with nations wary of U.S. protectionism. The 10% tariff on U.S. goods is lower than the U.S.’s 30%, giving China a cost advantage.
• Avoided Isolation: By negotiating, China prevents other nations from sidelining it in global trade deals. This is critical as Japan, India, and Vietnam pursue U.S. agreements.
• Economic Breathing Room: The pause eases deflationary pressure (China’s CPI fell 0.1% in April) and supports stimulus efforts, though underlying issues like unemployment persist.

Global Impact:

• Market Stability: Global stocks rose, with Europe’s STOXX 600 up 0.8% and oil prices climbing 2.7%. The U.S. dollar strengthened, with the ICE Dollar Index up 1.1%.
• Supply Chain Relief: The $600 billion in stalled U.S.-China trade can resume, benefiting companies like Maersk, whose shares surged 12% after the deal.
• Lingering Uncertainty: The 90-day pause keeps businesses cautious, as tariffs could snap back if talks fail. The International Monetary Fund’s 2025 global growth forecast remains at 2.8%, down from 3.3%, reflecting ongoing trade concerns.

Data Points:

• U.S. trade deficit with China: $295 billion in 2024.
• U.S. soybean export drop: 50% in April 2025.
• China’s export decline to U.S.: 20% in April 2025.
• U.S. market gains on May 12: S&P 500 (+2.6%), Nasdaq (+3.5%).
• China’s CPI: -0.1% in April 2025.

What’s Next for U.S.-China Trade?

The 90-day pause is a temporary reprieve, not a resolution. Both sides aim to negotiate a broader deal addressing issues like the U.S. trade deficit, fentanyl, and China’s trade practices. Trump insists China must “open up” to American businesses, while Beijing seeks to remove all U.S. tariffs. Future talks, led by Bessent and He Lifeng, may occur in the U.S., China, or a neutral country. Analysts warn that systemic frictions—intellectual property disputes, subsidies, and geopolitical tensions—won’t resolve quickly.

For now, the agreement buys time. U.S. consumers and businesses gain relief from price shocks, while China stabilizes its export-driven economy. However, the 30% U.S. tariff and remaining sector-specific duties (e.g., 25% on cars) keep pressure on China. If negotiations falter, tariffs could spike again, reigniting the trade war. As Trump noted on May 12, “We’re not looking to hurt China,” but he added that tariffs could return if China doesn’t meet U.S. demands. The world watches as these economic giants navigate their next steps.

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