The recent announcement of a tariff agreement between the United States and China has brought a wave of optimism to financial markets, which have been anxiously monitoring trade discussions in recent months. This period of uncertainty began before Donald Trump assumed the presidency, with speculation surrounding potential tariff policies. Escalating tax increases followed in subsequent months, with critical announcements slated for early April. On April 2nd, surprisingly high rate hikes were disclosed, marking a significant turning point. While some agreements have been reached in recent weeks, there remains a lingering question regarding the completion of these negotiations.
How Will Global Trade Dynamics Shift?
The imposition of substantial tariffs in early April was swiftly followed by an agreement with the United Kingdom. Just last Saturday, a temporary deal with China was secured. The quick progression of talks with China has invigorated hope among market participants that a comprehensive solution to the tariff conflict is within reach. Currently, Bitcoin stands at approximately $104,000, while alternative cryptocurrencies endeavor to rebound from losses.
Can Reductions in Tariffs Sustain Economic Growth?
Progress evidenced by the May 12th joint statement from the US-China Economic and Trade Meeting in Geneva underscores great strides made between the nations. Nevertheless, uncertainties linger as a long-lasting resolution remains elusive, according to Fitch Ratings.
A recent announcement specified that the United States will delay the 90-day imposition of a 34% reciprocity rate originally set for Chinese imports on April 2nd and revoke an increase to 125% declared for April 8th-9th. Concurrently, both countries agreed to lower their collective bilateral customs duties by 115 points. Consequently, US tariffs on Chinese imports will reduce to 30%, while Chinese tariffs on US imports drop to 10%.
China confirmed today that these newly negotiated rates would be effective by tomorrow. The previous triple-digit tariffs had severely disrupted trade activities, whereas the revised rates appear manageable within ongoing negotiations.
Due to high tariff rates in April, global GDP growth projections for 2025 declined to 1.9%. Recent accords have lowered the US’s effective tariff rate from 23% down to 13%. Despite this decrease, which contrasts to 2024’s 2.3% rate, the present US effective tariff rate (ETR) remains notably high. According to US Treasury Secretary Scott Bessent, aims to completely eliminate tariffs are not on the table.
Key conclusions arising from the current situation include:
- The US postpones imposing a 34% reciprocity tax initially set for April 2nd.
- Both nation’s collective customs duties decrease by 115 points.
- US tariffs on imports from China will become 30% and Chinese tariffs on US imports drop to 10%.
- US Treasury Secretary upholds tariffs for decoupling purposes.
Overall, the continued negotiations suggest that although the trade war wounds global trade, it will remain resilient. Assertions forecasting the end of global trade, reminiscent of post-World War II narratives, seem inaccurate today. This environment appears favorable for cryptocurrencies, and an emphasis is placed on China to establish large-scale production in the US. Meanwhile, calls for interest rate cuts continue, with President Trump emphasizing the current economic context to justify further actions. He argues that dropping inflation levels and decreased prices in key sectors should prompt the Federal Reserve to lower interest rates, drawing parallels to policies in Europe and China.
