The US and China agreed on Monday (May 12) to pause the majority of their tariffs for a period of 90 days, marking a significant de-escalation in trade tensions between the two countries.
The US will reduce its tariffs on most Chinese goods from 145 percent to 30 percent; meanwhile, China will lower its tariffs on US goods by a similar amount, dropping them from 125 percent to 10 percent.
In addition to the suspension of tariffs, a number of non-tariff measures will be suspended or reversed. These include removing rare earths export restrictions and taking some US tech and defense firms off trade blacklists.
The US will maintain a 20 percent tariff geared at pressuring China to curb the flow of fentanyl to the US. The other 10 percent is the baseline levy that the US has imposed on imports from most nations.
The Trump administration also said the lower tariff rate won’t apply to automobiles, steel and aluminum.
The deal is expected to bring a resumption of shipments to west coast port cities like Los Angeles and Seattle. Recent data indicates a significant reduction in activity as tariffs have pushed the price of goods beyond what many importers can afford. Port activity has dropped to levels not seen since the COVID-19 pandemic disrupted global supply chains.
Although the tariff pause is only temporary, the 90 day break will give the countries time to negotiate a more permanent deal and mitigate a growing trade war that began shortly after Donald Trump assumed the presidency in January.
‘Now, while the 90-day pause is a big step towards easing tensions, it’s crucial to remember that it doesn’t guarantee a complete resolution of the trade war,’ he explained.
‘Once those 90 days are up, everyone will be keeping a close eye on what happens next, especially the results of ongoing negotiations and whether the tariffs will be permanently cut or brought back.’
Market response was mixed on Tuesday (May 13), with the S&P 500 (INDEXSP:INX) jumping 0.9 percent to reach 5,896 points in morning trading and the Nasdaq-100 (INDEXNASDAQ:NDX) surging 1.75 percent to 21,231 points. The Dow Jones Industrial Average (INDEXDJX:.DJI) went the opposite direction, shedding a half percent to 42,216 basis points.
The gold price fell as low as US$3,208.80 per ounce on Monday, a drop of more than US$100 compared to last week’s closing price. It regained some ground on Tuesday and was trading in the US$3,250 range by 1:00 p.m EDT.
The silver price also saw an immediate decline on Monday, but was trading in the US$33 per ounce range on Tuesday.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.