US-China Trade Truce: A New Chapter in Economic Relations
Trade negotiations between U.S. and China: Beijing suspends non-tariff penalties on roughly 40 American companies during the 90-day truce period.
After grueling negotiations, the United States and China have settled for a temporary truce in their trade war. Here's a lowdown on the key highlights:
Tariff Adjustments Galore
In a dramatic shift, tariffs on both sides have been slashed substantially. The US has dropped tariffs on imports from China to a staggering 30%, while China has reciprocated by reducing tariffs on US goods to 10%. This marks a reduction of over 100 percentage points in some instances, marking an end to the relentless escalation that pushed rates to 145% (US) and 125% (China).
President Donald Trump, in a chat with Fox News, maintained that the US now boasts a "very, very strong" trade structure with China, underscoring the prospects of China opening its market to American enterprises as the most promising outcome of the talks.
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With the reduction in tariffs and the lifting of trade tension, global markets have rejoiced. Prices for growth-dependent metals like copper, aluminum, and zinc soared, with benchmark copper on the London Metal Exchange hitting its highest price since April at $9,664 per metric ton. The temporary peace in the trade war has undoubtedly brightened investor sentiment after several months of market turmoil.
Fentanyl Trade: The Ongoing Battle
Despite this temporary ceasefire in the trade war, the underlying friction persists. A critical sticking point is the US allegation that China supports the export of fentanyl-related chemicals, an accusation that Beijing adamantly denies. This issue has led to an additional 20% levy over the base tariffs.
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Analysts caution that this 90-day truce is not the final chapter. The risk of renewed hostilities looms large if both countries fail to make substantial progress during this period. "The trade war remains unsettled," an analyst noted, "The underlying issues are complex, and without resolution, things could just simmer down before another storm."
[1] Enrichment Data: According to the enrichment data, on May 12, 2025, both the US and China agreed to establish a mechanism for ongoing discussions on economic and trade relations. These talks will be facilitated by significant figures from both countries, including He Lifeng, Vice Premier of China, Scott Bessent, US Secretary of the Treasury, and Jamieson Greer, US Trade Representative. Additionally, China has agreed to modify its additional ad valorem rates on US goods, suspending 24 percentage points initially. The Chinese government also plans to remove modified rates imposed by previous announcements and suspend non-tariff countermeasures against the US.
[2] Enrichment Data: According to the Budget Lab at Yale, the reduction in tariffs, particularly those with China, is expected to mitigate some of the negative economic impacts of previous tariffs. The Budget Lab's analysis suggests that the May 12 changes alone have reduced the negative economic impact of all 2025 tariffs by about 40% in terms of price level and GDP. This can potentially contribute to a more favorable business environment, boosting stock markets. However, market volatility remains a significant factor due to various economic factors and geopolitical developments.
- Amidst the US-China trade truce, both nations have pledged to partake in ongoing discussions regarding economic and trade relations, with key figures such as He Lifeng, Scott Bessent, and Jamieson Greer playing significant roles.
- The reduction in tariffs, as a result of the US-China trade deal, is projected to alleviate some of the negative economic impacts caused by previous tariffs, according to the Budget Lab at Yale, potentially creating a more favorable business environment and boosting stock markets.
- In the face of the temporary trade truce, the Chinese government has agreed to modify its additional ad valorem rates on US goods, suspending 24 percentage points initially, and also plans to remove modified rates imposed by previous announcements and suspend non-tariff countermeasures against the US.
- The ongoing issue of the fentanyl trade, despite the truce, remains a point of contention between the US and China, with the US levying an additional 20% tariff over the base tariffs due to allegations of China supporting the export of fentanyl-related chemicals.
