Josh Bork and Diddy Tan
WASHINGTON (AP) – President Donald Trump’s agreement with China to temporarily cut tariffs for 90 days has provided a slightly welcome relief to the world. What persists, however, is a sense of uncertainty and the possibility that some degree of damage from the trade war can already be made.
The Trump administration agreed after consultations in Switzerland this weekend to curb 145% with tariffs charged to China’s imports. The Chinese government has chosen to reduce the retaliatory import tax on US goods from 125% to 10%, but the side continues to negotiate.
Trump declared breaking up the trade war a victory and soon said he would talk with Chinese President Xi Jinping about how to maintain financial relations between the two biggest economies in the world.
Anyway, tariffs have risen since Trump took office, scramble has risen to accommodate the White House threat and the combination of olive branches, making CEOs, investors and consumers uneasy and unwilling to take risks.
Trump is trying to continue the tariffs
The global economy is not planning to return to January 19, 2025, before Trump became president. Even if he routinely changed the rates, the US President and his aides revealed that most imports would be taxed at a minimum of 10%.
The 10% figure was Trump’s baseline. He gave it to most countries during a 90-day negotiation period after the rollout of the “liberation day” tariffs on April 2 caused panic in financial markets. He maintained the 10% rate as part of the framework with the UK announced last week. Trump’s new 30% tariffs on Chinese products also include 20% tied to China’s role in fentanyl and the 10% baseline applied elsewhere.
“We have a lot of deals,” Trump said Friday. “But we always have a 10% baseline.”
But Trump hints that there may be exceptions. Tariffs for the 25% division of automobiles, steel and aluminum are still in place, and Trump has emphasized that pharmaceutical drugs will also face import taxes soon.
Trump said Monday that he told House Speaker Mike Johnson and Senator Majority Leader John Tune to include tariff revenue when considering ways to pay for planned income tax cuts.
The reality is that negotiations can now be fixed
Tai Chang, a law professor who studies comparative legal and economic history at Yale University, said there was probably no confusion last month. Both countries are testing their strengths, highlighting the importance that Trump has imposed on foreign companies accessing US consumers and China, while China is resilient to external shocks.
“Like in recent February, both sides probably had unrealistic assumptions about each other’s economic or political weaknesses and intentions,” Chan said. “Americans had an exaggerated sense of their own negotiating power to begin with, and the Chinese may have had an exaggerated sense of their security from the economic pressures of America.”
“So the best thing to get out of this agreement seems to be a stronger sense of reality on both sides,” Zhang said. In it, Zhang said the two countries’ goals appear to be in line with China consuming more and the US manufacturing more.
The stock market loves news and can shape what happens next
The world has seen Trump being wary of riding on the wrong side of the financial market. When the April 2 announcement of rising fees encouraged the sale of shares and rising interest rates on US debt, he announced a 90-day tariff suspension, which was withdrawn to allow consultations with countries other than China to proceed.
The S&P 500 stock index rose 3.3% in Monday’s trading, allowing us to proceed with the speech examining the Trump administration’s decision to lower tariff charges.
Beware of the “bulfighting” effect
If Trump’s 145% tariffs are small in number of boats departing for US ports, the prospect of slightly lower tariffs could cause a stampede in transport containers to flow across the sea from China. The low possibility of ships from China has posed the risk of empty shelves in US stores. This is the last phenomenon seen during the Covid-19 pandemic that led to price and voter dissatisfaction.
But the fast pivot to lower tariff rates allows cargo sitting in warehouses and factories in Asia to rush to the cargo ships, causing them to rise sharply and cause prices that create congestion at the port. As businesses try to beat the possibility of reviving higher tariffs, there is a “absolutely” bullfighting effect where shortages are now turned into a rush of new supply, according to Michael Starr, vice president of growth at logistics firm Zencargo.
“They can now start shipping for the holiday season,” Starr said. “They will hurry up with as many orders as possible in the last 90 days. And yes, the ships can’t return to service as quickly as possible.”
There is little or no what’s ahead
University of Michigan economist Justin Wolfers emphasized that many view the 90-day consultation as short-term positive. However, during the past four months of the Trump administration, the president has raised 100% import tax on films made overseas, threatening Canada and Greenland with annexation, showing relative indifference to the possibility of financial distress from his actions.
“So, looking back at the past 120 days, it would be strange to feel optimistic about anything because you are as optimistic as you are now,” Wolfers said.
The US economy can still be hurt
The problem with Trump is that businesses have already put in the 145% tariff plans he previously announced and may be hesitant to fix them until permanent policies are set.
The resilient job market could potentially get hits from tariffs without breaking too much, just like it survived the Federal Reserve rate hike under Democratic President Joe Biden, designed to beat inflation. However, a 30% tariff is a cost absorbed by businesses and consumers, which can prevent many businesses from hiring and expanding their businesses.
“Some of them may be able to live at 30% for at least a while,” said Kevin Linz, a senior fellow at Washington’s Center for Equality Growth. “But what will happen to China’s tariffs in 90 days? Will they go up and down from 30%?
Lintz, who worked as an economist in the Obama and Biden administrations, sought to model the impact of the labor market based on Trump’s own assumption that short-term pain from tariffs ultimately brings long-term benefits. His analysis showed that employment declined.
“After all, the scenario will be very similar to a recession over the next few years,” Linz said.
Original issue: May 12, 2025, 5:16pm EDT
