In a significant diplomatic breakthrough, the United States and China have agreed to lower their triple-digit tariffs for a duration of 90 days. This development has led to a surge in stock markets and revitalized trans-Pacific trade flows, although uncertainties remain regarding the sustainability of this settlement. During a press conference in Geneva, Treasury Secretary Scott Bessent announced that both nations would reduce their import taxes by a substantial 115 percentage points.
The decision results in a decrease of U.S. tariffs on numerous Chinese products from at least 145 percent to a considerably high range of approximately 40 percent to 60 percent. This adjustment includes tariffs introduced by former President Donald Trump during his administration. Wall Street reacted positively to this news, with the S&P 500 index soaring over 3 percent and the technology-heavy Nasdaq climbing 4 percent, officially entering a bull market. Economists are now expressing optimism about the U.S. economy potentially avoiding a recession this year, while U.S. importers are keen to take advantage of the temporary tariff reprieve.
Jay Foreman, CEO of Basic Fun, immediately contacted his Chinese suppliers at 4:30 a.m. on the morning following the announcement to resume shipments of popular toys like Tonka trucks and Care Bears. This timely decision helped avert a planned furlough affecting 40 percent of his workforce. However, even with reduced tariffs, Foreman anticipates having to raise retail prices and accept smaller profit margins. He expressed frustration, stating, “It’s like they tried to feed us a rotten egg sandwich and hope we’re happy to drink spoiled milk instead.”
The temporary cessation of the trade war has alleviated some concerns regarding the slowing U.S. economy. Kathy Bostjancic, chief economist for Nationwide, revised her growth forecast for the last quarter of the year to an annual rate of 1 percent, up from a previous estimate of zero, attributing this improvement to the recent tariff reductions. Furthermore, she predicts inflation will peak at a 3.4 percent rate, lower than her previous forecast of 4 percent.
As U.S. businesses rush to import Chinese goods over the next 90 days, supply chains, which had been adjusting to a significant decline in U.S.-China trade due to high tariffs, may encounter strains. Despite a dip in cargo volumes during the trade standoff, logistics companies were preparing for a resumption of trade. In March, importers at the Port of Los Angeles returned 269,898 empty shipping containers to Asia, a 23 percent increase from the previous year, in anticipation of filling them with Chinese goods once tariffs were lowered.
However, officials at the Port of Los Angeles, the busiest in the nation, do not expect an immediate influx of cargo. Recent reports indicate that ocean carriers have canceled 17 out of 80 planned stops this month at the primary gateway for Asian goods entering the U.S. Some carriers have shifted larger vessels to alternate routes, replacing them with smaller ships. Robert Loya, COO of TGS Logistics, noted, "It is still a four-to-six-week turnaround before those vessels get repositioned into place, manufacturing kicks back up, orders are placed.”
The Trump administration's newfound willingness to engage with Beijing marks a notable shift, especially in light of the increasing toll of the trade war. President Trump has historically criticized China for "ripping us off" on trade. However, during discussions in Geneva, Bessent and U.S. Trade Representative Jamieson Greer expressed mutual respect for their Chinese counterparts, highlighting shared interests and a commitment to avoiding economic decoupling.
Despite the positive developments, the administration's plans for renewed bilateral discussions echo prior U.S.-China talks that were often deemed unproductive. Scott Kennedy, a China expert at the Center for Strategic and International Studies, emphasized the need for clarity in the administration's objectives regarding China, which include reducing the bilateral trade deficit, addressing industrial policies, and considering economic decoupling.
The unexpected tariff reduction from the Geneva negotiations has exceeded many analysts' expectations. Businesses have welcomed this larger-than-anticipated reduction but expressed frustration over the ongoing inconsistencies in Trump's tariff policies, which have led to confusion and increased costs. According to the U.S. Treasury Department, the federal government collected $15.6 billion in net customs duties in April, nearly double the previous month's total. For the ongoing fiscal year, importers have paid approximately $60 billion in tariffs, a significant increase from $44 billion during the same period last year.
Despite the recent tariff reductions, the effective U.S. tariff on Chinese goods will remain around 41 percent, a significant increase from 11 percent when Trump began his second term. Conversely, China's tariff on U.S. goods stands at 28 percent, double its rate at the beginning of 2025. Overall, U.S. import taxes are currently at their highest levels since the 1930s, according to Yale University's Budget Lab.
Drew Cleaver, a business owner from Texas, has been grappling with high import duties on his products, which have risen to confusing levels. Following the tariff deal announcement, Cleaver stated that while the situation is better, his costs remain significantly higher than before. He is contemplating relocating production to Mexico due to the high tariff environment. Cleaver's sentiments reflect a broader concern that the administration's deal with China may not sufficiently alleviate the challenges faced by U.S. businesses.
With the 90-day countdown underway, there is potential for tariffs to increase again later this summer. President Trump indicated that tariffs could "go substantially higher" if a deal is not finalized by the deadline, although he expressed optimism about reaching an agreement. In Geneva, Bessent suggested that the tariff pause could be extended, provided that the Chinese engage in "good faith" negotiations.
