Announced: "US Concedes Defeat"
Hostilities in the trade war have ceased, resulting in a temporary peace agreement.
Let's get real, alright? The big cheese at the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) spills the beans:
China was ready for a positive chat, based on mutual respect and transitioning towards tariff reduction. The Yanks ramp up the tariffs, causing issues in their financial markets, and the trade deficit doesn't shrink, as Chinese merchandise shifts through various countries. They even observe China standing firm against ultimatums.
The brief, intense phase of the trade war caused little harm to either side, apart from denting faith in the American prez's words. Data from April shows China's total exports increased by 8% compared to the same period last year – a 20% drop in US-bound shipments was more than offset by increased exports to ASEAN countries and India. This likely played a role in the US's decision to wave the white flag, realizing that middlemen would profit from the trade war, and such measures wouldn't resolve the trade deficit issue.
Currently, the deal seems like a mutual compromise, paving the way for a shift from coercion to constructive negotiations. China managed to halt the tariff increase cycle and alter the US prez's rhetoric. On the other hand, the US maintained a higher tariff rate on Chinese goods compared to China's tariffs on US products, enabling them to "save face."
A full tariff removal is unlikely, but further reduction by the US is possible, perhaps to a parity level with China. However, under Trump, tariffs will likely remain higher than in previous years to beef up the budget. Tariffs at 10% or below are unlikely to act as a major hurdle for US exports, and many companies may be willing to pay them as a "relaxation fee" rather than seeking alternative supply schemes.
I think that as a result of the upcoming consultations between the parties, a new agreement will be reached in which the US will reduce tariffs on Chinese goods, and China will commit to increasing purchases of American goods in sectors that do not affect its strategic interests. Such a setup would be beneficial for both sides.
"China Didn't Want a Fight"
The boss of the China Economy and Politics Sector at the Center for Asia-Pacific Research, Institute of World Economy and International Relations, Russian Academy of Sciences states:
Why did the duo agree to a "truce"? For the US, the major risk of maintaining ridiculously high tariffs was increased inflation, as both the tariffs themselves and changes in supply chains to bypass them jack up the final price of goods. On the Chinese side, the main risk factor was companies that hadn't diversified their clientele in time.
After the 90-day "truce" between Washington and Beijing, there could be a new escalation, followed by another "truce." The US will likely continue to exert pressure, as Trump's main aim is a swift and "flashy" deal that can later be showcased as an amazing "victory". China's primary objective, however, is to "tide over" Trump: Beijing hopes to postpone in expectation that Republicans will lose their majority in Congress or that Trump will vacate the White House.
China, actually, didn't want to be involved in any trade conflicts. Instead, it faces the challenge of easing external pressure on its economy, which already has a pool of sensitive problems. These include the decreasing effectiveness of traditional growth factors that made China a global industrial powerhouse, like cheap labor and the multiplier effect of investments, as well as export difficulties.
Meanwhile, new growth factors like overall efficiency gains through scientific and technological progress and broad final consumption by households have yet to fully take off. Therefore, for China to achieve its national development goals, it needs a calm and predictable external economic environment.
In the end, due to the increase in US tariffs, the growth rate of China's GDP in 2025 may be down by 1-1.5 percentage points. However, this loss is likely to be compensated by another Chinese economic stimulus program (infrastructure construction, tax deductions, subsidies, etc.), which, in turn, will further exacerbate the problem of high debt loads in Chinese provinces.
"They Both Need Each Other Too Much"
Executive Director of the Institute of Economic Growth named after P.A. Stolypin expresses his thoughts:
Both sides bagged something. The US got real trade talks with China. China demonstrated that the US can't operate without it.
Due to the incredible interconnectedness of their economies, both sides had to switch from escalation to dialogue. In terms of the volume of these connections, it's estimated to be up to $900 billion in US investments in China and over $1 trillion in Chinese investments in the US (including US government debt). In some sectors, there's complete dependence on each other: for example, the US relies on China for rare earths and toy production, while China relies on the US for certain technological services. We should also factor in linked production chains where both American and Chinese companies are engaged.
Speaking of the damage caused by a month of sky-high tariffs, yes, there were tales of production stops in both the US and China. But if we recall the COVID pandemic, its economic damage was mostly smoothed out by 2022. Compared to that, a one-month production halt doesn't seem irreversible.
What will happen in the next 90 days? Likely, agreements on mutual trade and freedom for American companies to operate in China will be reached. Something will surely be resolved manually. China may use these negotiations to reshape its economic contours, strengthen its financial system's global role, and bolster its internal demand and supply.
A complete tariff removal is possible, but only if both sides consider the negotiation results successful. That seems unlikely at the moment.
"The US Raised the White Flag"
Deputy Director of the Center for Comprehensive European and International Studies at the Higher School of Economics (HSE University) puts it straight:
The main reason for the parties to take a 90-day break is the internal economic costs of the trade war. In the case of the US, these were worsened by internal political costs, including increasing pressure from businesses.
Both the US Chamber of Commerce and many leading entrepreneurs and financiers, including close Trump allies like Warren Buffet, have been demanding a reduction in tariffs and negotiations with China. Additionally, the US faced recessionary conditions in the first quarter, with the threat of rising inflation. Furthermore, many Chinese goods have been circumventing US tariffs by routing through countries like Vietnam and Korea.
So far, it's a stalemate, but there's a slight advantage for China. The US was the first to suggest negotiations, despite the Trump administration's claims that it would maintain high tariffs until China reduces its retaliatory tariffs. China hasn't yielded, so it seems the US blinked first.
It's impossible to predict how the US-China trade talks will end, as the parties' positions are still far apart. The US wants a deal that maintains relatively high import tariffs, increases US exports, and reduces the trade imbalance. However, this is unlikely because the imbalance is inherent: the US can't export enough to China to significantly change the trade balance.
The likelihood of a mutually acceptable deal in 90 days is low. Afterwards, we can expect either a new tariff increase or an extension of the current "truce." A full tariff removal is impossible, as they are part of the US's strategic course towards reindustrialization, which the Trump administration is not willing to abandon.
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- Despite the US's initial aggressive stance, it appears that the American government realized the 10% or below tariffs, often viewed as a "relaxation fee," were not effectively resolving the trade deficit issue, prompting them to reconsider and possibly reduce tariffs on Chinese goods.
- The expert from the Higher School of Economics (HSE University) notes that the US, in a strategic move, raised the white flag due to internal economic costs and political pressure from businesses, particularly from close Trump allies like Warren Buffet, who advocated for reduced tariffs and negotiations with China.
