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Tariffs

Trump's Trade Deal with China: A Temporary Truce, but the Rollercoaster Continues

Strategic Insights

— 1 min read

President Donald Trump's administration has negotiated a potential deal with China, leading to a temporary pause in the trade war. As a result, the effective US tariff on goods from China will fall from around 145% to approximately 40%, while the effective tariff rate on goods imported by China from the US will decrease from around 125% to around 25%. However, not all tariffs have been suspended, and the markets' jubilation may be tempered by the reality that this is a temporary reprieve, and the rollercoaster of global trade may speed up again.

Key Takeaways:

  • The US and China have agreed to a 90-day temporary pause in their trade war, pending negotiations.
  • The effective US tariff on goods from China will fall to around 40% after product exclusions are factored in.
  • The effective tariff rate on goods imported by China from the US will reduce to around 25%.
  • The trade agreement does not eliminate all tariffs, with residual tariffs remaining in place.
  • The Trump administration has shown a tendency to make policy decisions on an ad-hoc basis, raising concerns that the agreement may not be sustainable.
  • The US consumer faces continued pressure from higher inflation caused by tariffs, which may limit their purchasing power.
  • The US and China may return to square one, with escalating tariffs, if negotiations fail to yield a lasting agreement.
  • US futures markets expect two interest rate cuts, but the probability of a third reduction has decreased to around 30%.
  • The US economy and Fed are likely to benefit from reduced inflationary pressures and increased trade, while the benefits for Trump are also clear.

Statistics:

  • Effective US tariff on goods from China: 40% (around 145% reduced to 40% with product exclusions)
  • Effective tariff rate on goods imported by China from the US: 25% (around 125% reduced to 25%)
  • US-China trade war escalation: temporarily paused for 90 days
  • Residual tariffs remaining in place: yes
  • Probability of a third US interest rate cut: around 30%
  • Interest rate cuts expected: two
  • Oil price increase: yes
  • Stock market reaction: significant gains in the US and elsewhere, with the Hang Seng index in Hong Kong rising nearly 3%
  • Timeframe for the agreed tariffs: 90 days

Sources:

  • Capital Economics
  • Hong Kong's Hang Seng index
  • Germany's Dax
  • France's Cac 40
  • Britain's FTSE 100
  • Wall Street's Dow Jones
  • The Trump administration

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