US, China Slash Tariffs but Uncertainty Looms Over Trade Deal

A recent agreement between the US and China to lower tariffs provides temporary relief for businesses but leaves lingering questions about the long-term stability of the trade deal.

As of May 14, the US will reduce tariffs on Chinese imports from 145% to 30%, while China will cut its 125% tariff on American goods down to 10%, SMCP said.

While this reduction offers a break for companies affected by higher costs, experts are cautious about the future.

"It remains to be seen whether the US and China can agree to a trade deal that keeps tariffs from rebounding in 90 days," analysts from investment firm Gavekal stated.

This tariff reduction is not permanent. US Treasury Secretary Scott Bessent referred to the 30% tariff rate as a "floor," suggesting that without a formal agreement, tariffs could rise again after the 90-day pause.

The current uncertainty is making it difficult for businesses to make long-term plans.

The 30% tariff on Chinese goods is still considered high compared to pre-2017 levels. Alex Jacquez, policy expert at Groundwork Collaborative, noted that the new baseline tariff is just a step back from the 145% levies that were previously imposed.

"While it's a walk-back from the prohibitive 145% tariffs, it still leaves us no closer to any concessions or renegotiations with China," Jacquez said.

Both countries face many unresolved issues beyond tariff rates. Trade imbalances, currency manipulation accusations, and other trade barriers continue to complicate negotiations.

Supply-chain expert Sina Golara from Georgia State University emphasized that these broader issues require more time to address.

Recession Risk Drops to 35% as US-China Tariffs Are Reduced

While the truce may not lead to a permanent resolution, the tariff reduction does offer some positive economic news.

Consumer confidence is expected to rise, boosting spending and helping contain inflation.

According to CBS News, Ryan Sweet, an economist at Oxford Economics, has reduced the likelihood of a US recession from more than 50% to 35%, highlighting the impact of tariff reductions as a key reason for the change.

However, the reduced tariffs do not completely eliminate concerns. Many businesses, particularly small ones, still face significant uncertainty about future costs.

"If you're a small business and don't know what your inputs will cost next week or in 90 days, it's going to be extremely difficult to do business," Jacquez added.

For US businesses, the pause in tariffs may also lead to increased shipments from China as companies rush to stock up before the 90-day period ends.

This surge in freight shipments is expected to drive up shipping rates, which could strain smaller businesses already working with tight margins.

Although the recent tariff reductions offer temporary relief, the long-term economic outlook remains unclear.

Veronique de Rugy, a senior fellow at the Mercatus Center, noted that the previous tariffs were so harsh they discouraged imports from China.

The reduction in tariffs is seen as positive because it will ease supply restrictions. However, she also cautioned that US consumers will continue to face higher costs.

Originally published on vcpost.com