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Chinese foreign relations

US-China Trade War De-Escalation: Implications and Uncertainty

Strategic Insights

— 2 min read

The United States and China have taken significant steps to de-escalate their trade war, as evidenced by the recent meeting between US President Donald Trump and Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea. The two leaders reportedly agreed to lower US tariffs on Chinese goods, with China pausing controls on rare earths exports for a year and restarting the purchase of US soybean and taking action on the illicit fentanyl trade.

As the world economy continues to grapple with the uncertainty triggered by Trump's policy of reciprocal tariffs, the developments between the US and China have been closely watched. The meeting between Trump and Xi is seen as a significant step towards stabilizing relations between the two countries.

The resolution of the trade war has been a concern for the US economy, with estimates suggesting that the average effective tariff rate has moved up to 18 percent, the highest since 1934. However, despite this, the US economy seems to be powering on, with some attributing the growth to AI-related investments.

Despite the positive developments, experts caution that the US economy is still experiencing significant uncertainty, with some states in recession or struggling. The labour market data also reflect this, with real income growth slowing to near-decadal lows. The Federal Reserve's decision to cut interest rates by 25 basis points in its October meeting acknowledges this uncertainty, with Fed Chair Jerome Powell warning that another rate cut in December is not a foregone conclusion.

Key Takeaways:

  • The US and China have taken significant steps to de-escalate their trade war, with Trump and Xi agreeing to lower tariffs and address key issues such as rare earths exports and fentanyl trade.
  • The meeting between Trump and Xi is seen as a significant step towards stabilizing relations between the two countries.
  • The resolution of the trade war has been a significant concern for the US economy, with estimates suggesting that the average effective tariff rate has moved up to 18 percent, the highest since 1934.
  • Despite this, the US economy seems to be powering on, with some attributing the growth to AI-related investments.
  • However, experts caution that the US economy is still experiencing significant uncertainty, with some states in recession or struggling.
  • The labour market data also reflect this, with real income growth slowing to near-decadal lows.
  • The Federal Reserve's decision to cut interest rates by 25 basis points in its October meeting acknowledges this uncertainty.

Statistics:

  • Average effective tariff rate in the US has moved up to 18 percent, the highest since 1934 (Source: Yale budget lab).
  • Real income growth has slowed to near-decadal lows (Source: JP Morgan Chase).
  • A large number of states in the US are either in recession or treading water (Source: Moody's Analytics).
  • The unemployment rate has edged up (Source: US Federal Reserve).
  • The US economy is experiencing significant uncertainty, with experts cautioning that another rate cut in December is not a foregone conclusion (Source: US Federal Reserve).

Sources:

  • The Indian Express (P) Ltd Copyright 2025 IE Online Media Services Pvt. Ltd.
  • Yale budget lab
  • Moody's Analytics
  • JP Morgan Chase
  • US Federal Reserve

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