Trump administration agrees to dial back most tariff increases on China for 90 days
San José, CA – After a weekend of negotiations in Geneva, Switzerland, Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng announced on Monday, May 12 that the United States would roll back its tariffs on Chinese imports by 115%, from 145% to 30%.
The Chinese agreed to match this tariff reduction, reducing China’s tariffs on U.S. goods from 125% to 10%. China did not agree to any of the U.S. trade demands and many U.S. news reports had to admit that China did well, with one headline from Bloomberg News reading, “Xi Defiance Pays Off as Trump Meets Most China Trade Demands.”
At the beginning of the massive tariff escalation, Trump was confident that the United States had the upper hand, since China would lose more sales from U.S. tariffs than the United States would lose. What Trump and others failed to see was that much, if not most of what was imported from China could not be replaced, putting U.S. jobs and businesses at risk. On the other hand, some of the largest U.S. exports to China, such as farm products, oil and natural gas were goods that other countries were willing and able to sell to China. Most of the countries in the world have China as their largest trading partner, while only countries in North America and western Europe generally still have the United States as their largest trading partner.
Ever since the first Trump administration, the Chinese government had been preparing for U.S. escalation of its trade war. China sought out other countries to trade with and reduced the proportion of Chinese exports going to the United States. Increasing restrictions on high tech exports, and in particular sanctions on one of China’s tech champions, Huawei, forced China to develop its own semiconductors and allowed Huawei to bounce back.
China also proceeded with its “Made in China 2025” plan and today key industries of the future, including solar energy, electric batteries, electric vehicles, ocean ship building, robotics and now even artificial intelligence have Chinese firms either dominating or competitive on a world scale. In contrast, Trump is accelerating the relative decline of the United States by wanting to go back to 1900 in terms of tariffs and industry, applying protectionist tariffs on steel and promoting coal. Rather than dealing a blow to Chinese socialism, Trump has in fact made American capitalism lag even farther behind in more and more industries.
While Chinese leader Xi was making trade deals with Vietnam, Cambodia and Malaysia, all members of ASEAN or the Association of Southeast Asian Nations, Trump could only sign a “framework” with the United Kingdom while levying heavy tariffs on almost every other country in the world.
More negotiations will happen between China and the United States, but Trump’s trade war is by no means over. Trump has mentioned even more sectoral tariffs to be levied on pharmaceuticals, movies and semiconductors, and his administration is conducting investigations into copper, trucks and lumber.
Further, given the agreement with the United Kingdom, where the United States has a trade surplus, and with China, it seems like the 10% across the board tariffs are here to stay. This is a large increase from the less that 2% average tariffs when Trump came into office, meaning that prices are likely to rise even faster in the United States, further squeezing the purchasing power of workers’ wages and small businesses’ income.