On Monday, the US and China reached an agreement to cut air tariffs for 90 days. Both sides claimed they could withstand a long trade war, but they reached a ceasefire faster than many analysts had expected.
The breakthrough marked a dramatic ratchet of trade tensions following the tariff war launched by US President Donald Trump in the announcement of the “liberation day” on April 2.
Trump initially announced so-called mutual tariffs in dozens of countries before suspending just a week later. However, China did not get off the hook and Beijing quickly retaliated with its own tariffs.
The TIT-FOR-TAT replacement quickly snowballed to an eye-opening sum. By April 11, tariffs on Chinese goods that enter the US had reached 145%, and taxes on US goods that enter the US had risen to 125%.
Tensions were already at a boil last weekend when US Treasury Secretary Scott Bescent and his Chinese vice president, Lifeng, agreed to a ceasefire that would cut their respective tariffs by 115 percentage points for three months.
US duties on Chinese products have now fallen to 30%, while Chinese tariffs on US products have fallen to 10%. The stock market flocked to the news, with NASDAQ composites rising 4.3% on Monday, up 20% from April lows.
However, one important question has important implications for trade consultations. Was Washington or Beijing the first?
What did both countries say?
The tariff suspension, which was sharper than analysts had expected, came after two days of trade talks in Geneva, Switzerland. On Monday, the US and China issued a joint statement announcing the deal.
The two countries acknowledged the importance of “bilateral economic and trade relations” and “sustainable, long-term, mutually beneficial economic and trade relations.”
The US and China agreed to establish a mechanism to continue debating trade relations. China also agreed to “suspend or cancel” non-tariff measures against the US, but did not provide details.
Speaking with a Geneva reporter last weekend, the Chinese deputy prime minister described the speech as “fun, detailed and constructive.”
On his part, U.S. Treasury Secretary Bescent told Bloomberg Television Monday that “I agree that neither party wants a generalized decoupling.”
“The US plans to do a strategic separation in terms of items discovered in Covid. This was a national security interest, including semiconductors, drugs, steel.”
After the talks ended, Trump praised the negotiations as “a great trade deal,” adding that “we are not trying to hurt China.” He then claimed a personal victory and said he designed a “total reset” with Beijing.
Elsewhere, Hu Xijin, former editor of China’s state-run Global Times Publications, said on social media that the deal was “a big victory for China.”
What are the conditions for the suspension?
After the tariff suspension was announced, Bescent said it was “incredible” that mutual tariffs on China would fall below 10%. However, he said the level on April 2nd, which President Trump set at 34%, would be “the ceiling.”
He also said, “We could see some of the fentanyl tariffs… it’s coming out.” Earlier this year, Trump put a 20% tariff on China, accusing the US of not enough to stop the flow of fentanyl, a highly addictive and deadly opioid.
For now, Chinese products continue to face 30% tariffs. Furthermore, certain products from China, such as electric vehicles, steel and aluminum, have been affected by even higher independent tariffs in recent years.
On Monday, the White House issued an executive order that lowers duties Low Value Package – Products up to $800 – From 120% to 54% from China.
Also, a minimum of $100 fees will remain for packages from e-commerce sites Temu and Shein, but the $200 increase planned for June 1 has been removed.
Conversely, Beijing has pledged to suspend non-tariff forms of retaliation imposed after April 2, including restrictions on exports of important minerals used by US manufacturers in high-tech equipment and clean energy technologies.
In particular, the agreement does not include concessions from Beijing on several US fixed points, such as a surplus of large trade with the US.
Customs duties will be suspended for 90 days. They will be subject to review based on a wide range of negotiations over the coming weeks and months.
Who recognized more ground?
The speed at which the US and China unlocked tariffs and surprised many analysts suggests that the trade war was causing pain on both sides.
Tariffs threatened the unemployment of Chinese factory workers, threatening higher inflation and empty shelves for American consumers.
But it is clear to Pierguy Seppe Fortenato, an adjunct professor of economics at the University of Neuchâtel in Switzerland, who wanted to trade worse.
“First of all, the US has made more concessions than China. Secondly, the US economy, which is currently unstable, depends more on China’s economy than on other ways.”
In April, the International Monetary Fund warned that the US economy faces an increased risk of a recession as Trump’s trade war and rising consumer prices unleash a “severe slowdown.”
Fortunate told Al Jazeera, “Beijing is not in such a volatile position. Take the latest export figures, for example.”
China’s exports grew sharply in April. A strong performance, up 8.2% from the previous year, comes as Chinese companies divert trade flows to Southeast Asia, Europe and other destinations.
“I think Washington overestimated his hands in Beijing,” Fortunato said.
“The White House overestimated the importance of the US market and underestimated China’s success in diversifying exports from the US since the first Trump trade war in 2018.”
What happens next?
“If possible, it could take a long time to reach a detailed agreement,” Fortunato said.
In 2018, the US left the potential trade agreement following consultations with Beijing. In the next 18 months, customs exchanges took place before the Phase 1 transaction was signed in January 2020.
However, China did not meet all the terms of its purchase agreement. It fell approximately 43% below the $200 billion worth of goods that we agreed to buy from the US by 2021.
The US trade deficit with China then jumped during the Covid-19 pandemic, setting the stage for the current trade war.
Earlier this week, Bescent again hinted that Washington may be looking for the type of “purchase agreement” that characterizes phase 1 transactions.
“The US has caused a stir that it may be asking for more purchase agreements, but the US economy has been a hit from a similar arrangement last time,” Fortunato said.
During Trump’s first trade war with China, the US-China Business Council estimated that 245,000 US jobs had been lost.
Because the tariffs are large today, it’s fair to assume that even after last weekend’s announcement, more work will be abolished.
In the future, Fultunato suspects that the US will “stroke at an average tariff rate of 15-20% and will be even higher in China. That’s five times more than in January… a massive change.”