Chinese and US trade representatives agreed to suspend for 90 days 115% of the sky-high tariffs each had imposed on the other. This still leaves tariffs of 30% on Chinese goods to the US and 10% on US goods to China, plus a few other assorted tariffs that had been in existence earlier.
Trump had been bluffing that the US could withstand the pain that the high tariffs that were clearly causing, in his usual childish way.
Donald Trump on Wednesday acknowledged that his tariffs could result in fewer and costlier products in the United States, saying American kids might “have two dolls instead of 30 dolls”, but he insisted China will suffer more from his trade war.
The US president has tried to reassure a nervous country that his tariffs will not provoke a recession, after a new government report showed the US economy shrank during the first three months of the year.
…“You know, somebody said, ‘Oh, the shelves are going to be open,’” Trump said, offering a hypothetical. “Well, maybe the children will have two dolls instead of 30 dolls. So maybe the two dolls will cost a couple bucks more than they would normally.”
But the absurdly high tariffs imposed by Trump were obviously unsustainable and it was clear that Trump had to back down and the question was whether China would give him a face-saving way to do that. Todays’ announcement indicates that they have chosen to do so.
The 30% levy that America is now imposing on Chinese goods includes an existing 20% tariff intended to pressure China into doing more to prevent the the synthetic opioid fentanyl from entering the United States. It also includes the same 10% “baseline’’ tariff Trump has slapped on imports from most of the world’s countries. The 30% tax comes on top of other levies on China, including some left over from Trump’s first term and kept by former President Joe Biden.
Trump had ratcheted the combined tariff to 145% last month, furious that China was retaliating, before backing down Monday.
But the suspension does not really address the underlying uncertainty that has roiled the business world because they still have to wonder what Trump will do at the end of that time. And given his impulsive behavior, he might do something reckless even during that 90-day period because he got annoyed about something.
In trade deals, there is usually some give and take and each side can point to some feature in their favor and claim that it is a ‘victory’. This is what Trump always does. But it seems clear that today can be labeled ‘Capitulation day’ following his much ballyhooed ‘Liberation day’ when he announced his massive tariffs on so many countries (even on those places with no human beings) along with his ridiculous chart.
Donald Trump will inevitably claim Monday’s temporary truce in the US-China trade war as a victory, but financial markets seem to have read it for what it is – a capitulation.
Stocks were up and bond yields were higher after the US treasury secretary Scott Bessent’s early morning press conference in Geneva, where he has been holding talks with China.
…The two sides have pledged to keep talking, but there was no reference in the statement put out by the White House to other gripes it has previously raised about China, including the weakness of the yuan.
Instead, the statement hailed “the importance of a sustainable, long-term and mutually beneficial economic and trade relationship”. The language was rather different to Trump’s Liberation Day speech, about the US being “looted, pillaged, raped and plundered by nations near and far”.
In other words, the president has caved. He may have been swayed by market wobbles but it seems more plausible that dire warnings from retailers about empty shelves – backed up by data showing shipments into US ports collapsing – may have strengthened the hands of trade moderates in the administration.
Confronted with warnings of a shortage of toys, Trump told reporters that children should be happy with “two dolls instead of 30 dolls”, and they might “cost a couple bucks more” than usual. But it is difficult to imagine even this most bullish of presidents withstanding the attacks that would come his way if he began to be seen as responsible for Covid-style shortages of key goods in the world’s largest economy.
Instead, the White House seems to have opted for tactical retreat. The China-US conflict was always the hottest theatre of confrontation in Trump’s trade war, with a longer history and deeper public support than his quixotic attacks on Mexico and Canada.
If Trump is indeed ready to give in even with Beijing, it sends a signal that some of the other aggressive aspects of his trade policy may be negotiable.
What Bessent and his Chinese counterparts have not erased, however, is the corrosive uncertainty that has gripped investors across the global economy since Trump’s “Liberation Day” tariff announcement.
It is this uncertainty that is most unsettling. With Trump, any policy, however major, is only in place until he gets ticked off by something one of his sycophants tells him or he hears on right-wing media. That is no way to deal with your own economy, let alone other nations, because when the future looks uncertain, the tendency of most, whether they be people or nations, is to try and maintain the status quo and wait until the dust settles before they take any major action. But with Trump, the dust never settles.
A 30% tariff is still huge. It only looks modest by comparison to the insane value he declared earlier. It’s like a news report that says a man was arrested for killing 145 people, but later you learn that he “only” killed 30.
The larger plan of convincing people to distrust their government to do good things, along with the associated chaos, is running right on schedule. Reagan would be proud. Soon the private equity vampires and vulture capitalists will be able to privatize all manner of (former) government services because average folks will prefer that over the day-to-day uncertainty and downright anarchy.
#1 @ jimf
QFT
The Chinese will wear down Trump after which he will pretend nothing happened.
Right now Trump is trying to distract the public by saying he will go after the European Union.
Good luck with that. EU has the greatest collection of experienced trade negotiators in the world (USA has of course lost a ton of professionals as The Idiot fires anyone who is not a bootlicker).
Let’s see. If they start loading container ships now in China, they will get here in around 21 days. Taking up about a quarter of the time allotted for the temporary tariff of 30%. Then unpacking and distributing will probably take another 3 weeks.
If Trump is thinking that this move will stop empty shelves from appearing on the news, he’s going to be surprised. Well, the empty shelves may not appear on Fox News.
In other news, Stellantis is talking about slowing or halting production of some car lines because of the immediate shortage of rare-earth magnets. Because of their high cost suppliers do not keep a large inventory of these items on hand, and many suppliers are running out. China has implemented export controls on rare earth magnets and now all suppliers need special permits to export them from China. These permits may be easier get now, but as far as I’ve heard the requirement for an export permit has not been lifted. Want to re-design vehicles so they don’t use rare-earth magnets? That will take about ten years. Three, if a lot of money is thrown at the redesign, and I mean a LOT of money.
Many years ago I had an acquaintance who was always late. Always. For everything. We finally figured it out. That person never included travel time in any of their planning. If they were supposed to be someplace at 8:00, they would leave at 7:59 with the assumption that they would get there on time.
I sometimes get the impression that very wealthy people are also incapable of understanding delays or travel time. If they want something which would take a month to arrive via a boat (like some of the print-on-demand books I get from India), they just throw money at it, get it seat on a plane and a courier to carry it and have the item in a few hours. Actions have consequences which are not immediately apparent, and those consequences cannot be corrected immediately.
It’s hard to really see it as a capitulation by one side, it’s more a recognition that they both need trade. This was a mutual back down between two parties that don’t like to back down. Independent of the trade war between China and the US the economic situation in both countries is getting worse. This forced both sides to the table before they could demand any real concessions or public concessions.
The big problem I see here is the 90 day period. There are a bunch of issues, they are complex and not all are written in the treaties. There is going to be a strong push to get something signed within that period. I see two big risks. China might press or trick the US out of strong support for Taiwan. Second, China may be able to out negotiate the US team. China may negotiate tariff exemptions on the things that matter to China will leaving big tariffs on a few things that China doesn’t export. China may reduce their import tariffs without resolving the underlying issues, such as stealing US IP and government meddling to block American companies.
Say it again: “markets hate uncertainty”.
That’s definitely a big problem, but I think the bigger problem is the one jimf pointed out @ #1: a 30% tariff is still very high, and only looks good in comparison to the previous completely insane 145% tariff.
What I find really amazing is that if the initial announcement had been for 30%, I’m pretty sure the market would have tanked badly enough on that, but now it’s bounced so much on the announcement that it’s “only” 30% that it’s now somehow higher than it was before “Liberation Day”. Absolute madness.
Two words summary: Trump choked.
Not literally, sadly. And his fans will hail victory, and probably do the arm movement to match.
Peter Zeihan has a series of videos on Trump’s policies. It is called “The Fire Hose of Chaos”. A pretty apt description of the 2nd Trump presidency so far.
Dunc @7: agreed; and as I’ve read posted elsewhere (probably on FtB), when you see stock market swings like we’ve had as a result of the tariffs, you know somebody’s making a killing on it; and it’s not you and I. Folks who have inside information are making out like bandits, and we know who they are.
@billseymour: I wouldn’t be surprised if Trump was trying to run a pump-and-dump scheme on the stock market for the benefit of his billionaire buddies. But it only works if people panic-sell or panic-buy in response to every headline.
People with investments who follow a buy-and-hold policy haven’t been affected very much by the tariff chaos so far. Of course, if a second Great Depression begins this year, that will change.