About a month into a trade war between the US and China that rattled the world, both rolled back the bulk of tariffs in an unexpected move.
As of May 14, the US has reduced tariffs on Chinese imports to 30%, down from 145%. China reciprocated by lowering duties on US goods to 10% from 125%.
Both sides touted the outcome as “substantial progress.” But observers and manufacturers say the agreement marks only a temporary reprieve rather than a reset of the relationship between the superpowers.
Here are five things to know.
The economic reality kicked in for US President Donald Trump
The scope and the speed of the climbdown took many by surprise. According to analysts from Morgan Stanley, the effective US trade-weighted tariff on Chinese goods fell to around 40%, from 107%, based on the announcement. This is significantly lower than the bank’s previous assumption of a gradual decline to 71% by midyear.
Meanwhile, China’s effective tariff on the US came down to around 25%.
Walking back from what amounted to an all-out trade embargo highlights the limitation of Trump’s deal-making approach in the face of economic reality.
Trump is “reversing course in the face of market and economic pressure,” said Michael Hirson, head of China Research at New York-based 22V Research. US assets, including stocks, bonds and currency, suffered a sharp sell-off in early April, while US retailers warned of empty shelves due to supply chain disruptions caused by hefty tariffs.
Some believe Trump is unwinding the tariffs after it became apparent that American companies would incur extra costs. Despite a de facto embargo, Chinese companies still exported to the US in April, albeit 21% lower than in the same period last year.
This implies that “significant tariffs were being paid by US importers,” said Lynn Song, chief economist for greater China at ING, adding that the US may struggle to find easy substitutes for many Chinese exports.
It’s a truce rather than a deal
The quick truce, however, doesn’t preclude the US from reversing course, as Trump did in his first term. In January 2018, China and the US agreed to a 90-day pause in their trade war at the G20 summit. But in May 2019, Washington hiked tariffs to 25% from 10% on USD 200 billion worth of Chinese imports as negotiations broke down.
“This is a temporary fix,” said Wendy Cutler, vice president at the Asia Society Policy Institute. “Suspending tariffs for a specified period of time is quite different than a permanent solution and suggests that the tariffs could return if progress in talks is stalled.”
Finding middle ground on longstanding issues, such as China’s exchange rate policy and market access for American companies could take much longer, if possible at all.
“The systemic trade frictions between the US and China will not be resolved within 90 days,” said Stephen Olson, senior fellow at ISEAS-Yusof Ishak Institute in Singapore.
There are still uncertainties around China’s nontariff measures
China’s Ministry of Commerce said it will suspend or cancel all “nontariff countermeasures” against the US without elaborating. These include export controls on rare earths and the suspension of soybean import licenses for American companies.
On May 14, the ministry said it had removed 28 US companies from an earlier export control list that bans Chinese companies from shipping dual-use items to them for 90 days. It also suspended the addition of 17 US companies to its unreliable entity list for the same period. Companies on this list are subject to trade and investment restrictions.
However, China appears to be taking a more hardline approach to resuming exports of critical minerals.
A commerce ministry spokesperson said it is necessary to “strengthen oversight across the entire chain” to prevent illegal smuggling to other countries even as some Chinese rare earth producers have gradually resumed overseas shipments under a new export licensing regime, Chinese media outlet Caixin reported on May 15.
Separately, Yuyuan Tantian, a social media outlet affiliated with China’s official broadcaster CCTV reported that China has “accelerated replacements” of US products such as soybeans, corn, and vegetable oil by signing deals with Argentina and Brazil.
US treasury secretary Scott Bessent had hinted the US might strike some “purchase agreements” with China, stirring expectations that another form of so-called Phase One deal may be underway. Beijing largely failed to fulfill its promise to buy USD 200 billion more from the US such as soybeans over 2020 and 2021.
Analysts are less optimistic about the substance of a similar deal.
“China’s actual appetite for US goods is probably even more limited today, given weak domestic demand and China’s strategic priority for de-risking critical supply chains from dependence on the US,” said Hirson from 22V Research.
China is sticking to a hard line against the US
Analysts see Beijing with the upper hand. If lowered tariffs hold, policymakers will be under less pressure to roll out more economic stimuli. The weakening of the Chinese yuan since the US election is also giving China’s exporters a boost in other markets and could “almost entirely offset the damage of a 40% tariff on China’s exports to the US,” said Mark Williams, chief Asia economist at Capital Economics.
In an editorial published on May 12, Chinese communist party’s mouthpiece, People’s Daily, called the outcome “a good start” but urged the US to “thoroughly rectify its wrong approach in imposing tariffs unilaterally.” A foreign ministry spokesman on Tuesday reiterated that the US had “unjustifiably” imposed tariffs on China because of the fentanyl trade. “If the US truly wants to cooperate with China, it should stop smearing and shifting blame onto China,” he said.
Wang Wen, executive dean of Chongyang Institute for Financial Studies at Renmin University in Beijing, believes China is savvier in dealing with Trump in his second term. “If the US still continues to pressure China, the only inevitable choice for China is to rise up to the occasion and defend its core interest and national dignity,” Wang said.
US importers are rushing through orders from China
Some US businesses have rushed to resume suspended orders from China. “We are very busy today,” said a manager of a Shenzhen-based logistics company that handles shipments to America. “We recommend shipping now because we don’t know what will happen after three months. [Trump] might even change his mind within two months,” he said.
China’s slowed export growth in April suggests some US importers canceled or scaled down shipments. Some products bound for the US sat in Chinese warehouses, waiting for tariffs to fall. Analysts predict a boost in Chinese exports as shippers front-load deliveries in the 90-day window.
An employee at a Yiwu-based manufacturer of Santa Claus dolls and other Christmas decorations said he had expected tariffs to come down eventually, but was relieved that a deal was reached sooner than anticipated. “30% is not an issue. Many customers can accept it,” he said, referring to the lowered US tariffs on Chinese imports.
Peter Sand, chief analyst at Xeneta, expects this year’s peak ocean shipping season, which usually falls in the third quarter, to start earlier. Shipping rates may consequently rebound, he added.
“April and May are our busiest months, and we are already making orders from other countries,” said the employee from the Yiwu manufacturer. “So even if you order today, you will not be able to receive the goods quickly.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.