Trump's China trade deal resets the board
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Illustration: Aïda Amer/Axios
On April 2, President Trump appeared ready to blow up the global trade system and effectively divorce the U.S. economy from many major partners. Now it's clear that's not happening.
Why it matters: The shock-and-awe of Liberation Day, and the extreme escalation of tariffs on China that followed, amounted to a de facto blockade between the world's two largest economies.
- That was set to cause a major surge in consumer prices, goods shortages, and lost jobs.
- The de-escalation over the weekend reduces, though doesn't eliminate, those economic pain points.
Driving the news: The weekend brought high-level talks among Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer and top Chinese economic officials.
- For the next 90 days, the U.S. will slash the tariffs on Chinese goods to 30%, from the 145% levy in effect for the past month. China agreed to cut its rate on U.S. exports to 10% from 125%.
- Those triple-digit tariffs had effectively stopped trade between the two nations, raising fears of shortages, layoffs and higher prices.
The big picture: Bessent signaled that the U.S. wants to continue to trade with China, a sign that whatever tariffs remain will be relatively manageable for U.S. firms.
- "We do not want a generalized decoupling from China, but what we do want is a decoupling for strategic necessities, which we were unable to obtain during COVID, and we realized that efficient supply chains were not resilient supply chains," Bessent told CNBC on Monday morning.
- On Sunday, Bessent said bluntly: "We do want trade."
Between the lines: The U.S.-China pause follows somewhat of a retreat on tariffs with the U.K., on which a 10% across-the-board baseline rate remains.
- The White House also eased tariff pain for the auto industry, with Commerce Secretary Howard Lutnick acknowledging that companies needed time to adjust.
- After weeks in which CEOs and logistics experts have been pulling their hair out, warning of dire consequences from the trade war, the administration is striking a series of face-saving deals.
Zoom out: It's becoming clearer what the new normal for trade policy looks like: across-the-board tariffs of at least 10% on countries with basically balanced trade and friendly relations (like the U.K.), or more like 30% for countries with which the U.S. has huge trade deficits and/or frosty relationships (like China).
What they're saying: "The administration's willingness to drive a harder line against China and other trading partners has now substantially waned," Skanda Amarnath, an economist at Employ America, wrote in a note.
- "It is now more likely that the more diminished costs of tariffs are reflected through higher prices and not through outright declines in output and employment," added Amarnath, who marked down his odds on a recession in light of the deal.
The 30% tariff on China that remains still implies major economic adjustments ahead.
- UBS chief U.S. economist Jonathan Pingle estimates the lowered tariffs bring the average weighted tariff rate in the U.S. to 15% from roughly 24%.
- That still represents the highest tariff levels seen in decades.
Of note: While tariffs were implemented on Chinese imports in Trump's first term and expanded in the Biden administration, those were on targeted lists of goods, in which the U.S. has specific complaints about Chinese overcapacity undermining strategic sectors.
- These are across-the-board, meaning they will affect all sorts of industrial inputs and consumer goods.
- Whereas 10% tariffs are something importers and their suppliers might be able to absorb in the form of lower profit margins, 30% tariffs are a lot to swallow.
- That means more impact on prices in the short term and more incentive for companies to reshore supply chains in the medium term.
Zoom in: The combination of the 30% China tariff and pre-existing tariffs "will still make for an expensive back to school and holiday season for most Americans," said American Apparel and Footwear Association CEO Steve Lamar in a statement.
- "If freight rates spike due to the tariff-induced shipping disruptions — which will take months to unwind — we could see costs and prices creep up even further," he added.
Still, the calming of trade tensions has financial markets downright giddy. The S&P 500 was up 2.7% as of late Monday morning and trading above its level before the April 2 reciprocal tariffs were announced.
- "Markets are reacting extremely positively to the news that the Trump administration was using tariffs as a negotiating tactic after all, and we aren't going to go blindly back to the Smoot-Hawley days," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
The bottom line: CEOs and executives have spent the past month figuring out how to adjust to sky-high tariffs. In that context, a tariff rate of 30% on Chinese goods looks manageable.
