Uncertainty Remains as US and China Agree on 90-Day Tariff Pause

Strategic Insights -

The agreement between the US and China to pause punishing tariffs for 90 days has been met with relief from businesses and investors, but many are still holding off on making long-term decisions due to the uncertainty it creates. The temporary reduction in tariffs, which will lift the de facto trade embargo between the two countries, is expected to allow for trade to resume to some degree, but the short-term nature of the deal is likely to limit its benefits. Economists warn that the constant changes in trade policy are damaging to the economy, discouraging companies from hiring and investing.

Key Takeaways:

  • The 90-day tariff pause agreement between the US and China is expected to allow for trade to resume to some degree, but the short-term nature of the deal is likely to limit its benefits.
  • Many businesses are still holding off on making long-term decisions due to the uncertainty created by the constant changes in trade policy.
  • Economists warn that the uncertainty is damaging to the economy, discouraging companies from hiring and investing.
  • The agreement is an executive action taken by President Trump and is not a legally binding treaty ratified by Congress, meaning it can be changed or reversed at any time.
  • Companies and executives are hopeful but cautious about the deal, with many expecting tariff rates to change again in the near future.
  • The uncertainty has led to reduced demand for workers, with companies like For Learning Resources pausing or halting hiring and investment decisions.
  • The deal has been met with relief from investors, with stock indexes surging on the news, but the long-term implications of the uncertainty remain unclear.

Statistics:

  • The tariff rate on Chinese goods was reduced to 30 percent from 145 percent under the agreement.
  • The deal is for 90 days, during which time the two countries will not impose punitive tariffs on each other.
  • The worry is that the tariffs will go back up and be "substantially higher" if China doesn't agree to a trade deal within the 90-day window.
  • A survey of companies found that many are holding off on making hiring and investing decisions until they see where tariffs end up.
  • The uncertainty has led to increased caution among businesses, with executives like Rick Woldenberg at For Learning Resources saying they're "clinging to every dollar" and holding off on long-term decisions.
  • The constant changes in trade policy have made it hard for the central bank to chart a clear path forward for interest rates.

Sources:

  • Steven J. Davis, Stanford economist
  • Sina Golara, management professor at Georgia State University
  • Alex Jacquez, former economic adviser to former President Biden
  • Gene Seroka, executive director of the Port of Los Angeles
  • Rick Woldenberg, chief executive of For Learning Resources
  • Austan D. Goolsbee, president of the Federal Reserve Bank of Chicago
  • Sarah House, economist at Wells Fargo