US-China trade deal: Surprising compromise or temporary pause?

Proceeding from a new article, The Economist explores that after a weekend of intense negotiations in Geneva, the US and China have reached a surprising trade agreement, slashing tariffs and offering a glimmer of hope for easing months of escalating tensions. But while the deal marks a step in the right direction, the next 90 days will reveal whether this temporary truce can evolve into a lasting peace or whether tariffs will spike once again.

The US has agreed to lower its “reciprocal” tariffs on Chinese goods from 125 per cent to 10 per cent for at least 90 days, while China has committed to doing the same. Additionally, China will roll back other retaliatory actions, including restrictions on rare-earth mineral exports. However, earlier tariffs, including a 20 per cent levy imposed by the US on Chinese fentanyl-related products, remain in effect.

Despite these reductions, the new tariffs are still significantly higher than what former President Trump inherited when he assumed office in January. However, the situation is notably better than it seemed just a few weeks ago, when both nations appeared on the brink of a full-scale trade war.

Market reactions to the news were positive. The dollar strengthened by 1 per cent against the euro, and the S&P 500 jumped by 2.6 per cent. Hong Kong's Hang Seng Index, which includes many Chinese companies, rose by 1.7 per cent in late trading.

The success of the Geneva talks was attributed to the informal setting. US trade representative Jamieson Greer noted that discussions in a more relaxed venue, such as the ambassador's residence, allowed for productive negotiations.

Looking ahead, the central question is what happens after the 90-day period. The US has warned that if no progress is made, tariffs could return to their higher levels. Both sides are hopeful that the next round of talks will lead to a more lasting resolution.

By Naila Huseynova