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The bilateral trade discussion between the United States, the world’s largest economy, and China, the second-largest, ended with both sides drastically slashing tariffs to facilitate smoother imports from each other. The agreement between these two major trade partners provided much-needed relief to the global economy, which had been under threat of a slowdown due to the US-China trade war. The first round of trade negotiations between the two countries, held in Geneva, Switzerland, on Saturday, concluded with a 90-day ceasefire.
This de-escalation in the trade war is seen as a win-win situation for both parties. The United States retreated from its stance of imposing higher reciprocal tariffs announced on Liberation Day, while China responded positively by retracting its aggressive countermeasures. Both nations are now expected to honour each other’s trade integrity, contributing to an improved outlook for the global economy.
Secretary of the Treasury Scott Bessent stated, “We made substantial progress between the United States and China in these very important trade talks. The Swiss government has been very kind in providing us with this wonderful venue, which contributed significantly to the productivity we’ve achieved. We will provide detailed information tomorrow, but I can tell you that the talks were productive. Our Vice Premier and two Vice Ministers, who were integrally involved, along with Ambassador Jamieson and myself, briefed President Trump last night on the developments. A complete briefing will follow tomorrow morning.”
Echoing similar sentiments, US Trade Representative Ambassador Jamieson Greer remarked, “This was a very constructive two days. It’s important to note how quickly we were able to reach an agreement, which suggests that the differences were perhaps not as significant as previously believed. That being said, a lot of groundwork went into these two days. Let’s not forget why we’re here in the first place—the United States faces a massive US$ 1.2 trillion trade deficit. This prompted the President to declare a national emergency and impose tariffs. We’re confident that the deal struck with our Chinese partners will help us move closer to resolving this national emergency.”
Joint statement
The Chinese and US governments released a joint statement following trade talks in Geneva, Switzerland, announcing a 90-day ceasefire in the trade war. The agreement rolls back US tariffs on Chinese products to 30 percent and Chinese tariffs on US goods to 10 percent. However, it remains unclear whether the de minimis exemption for products shipped from China and Hong Kong will be reinstated or if minimum fees will persist.
These rates restore tariffs to pre-Liberation Day levels and signal a better-than-expected de-escalation. Many market participants had anticipated a reduction closer to the post-Liberation Day tariff range of 50-60 percent, which would have offered a more modest boost to Chinese exports. While the de-escalation benefits both economies, the agreement, which significantly reduces tariffs without any apparent concessions, is likely to be perceived as a particular victory for China.
Beijing had previously insisted on a tariff reduction as a prerequisite for negotiations, a goal that now appears to have been achieved. China's response to the April escalations demonstrated its readiness for a prolonged standoff if necessary, underscoring its strategic patience.
The progress
Since Donald Trump assumed office as President of the United States on January 20, 2025, his administration has adopted an aggressive stance toward trade partners, imposing heavy import tariffs on 180 countries exporting to the US. China has been a primary target of these measures, as it accounts for the largest trade deficit with the US—approximately US$1 trillion, a figure nearly equivalent to China’s overall trade surplus.
Citing this substantial trade deficit, the Trump administration initially imposed a base tariff of 10 percent in March. China retaliated with a 15 percent import duty on US goods. In April, President Trump responded by adding an additional 10 percent tariff to counter China’s move. In turn, China escalated its tariffs by another 15 percent. On April 2, the Trump administration imposed further reciprocal tariffs, beginning with a base rate of 10 percent on all imports and imposing higher duties on major trading partners. A specific 34 percent import tariff was levied on Chinese goods.
China countered with progressively higher tariffs, eventually reaching 125 percent. In response, the United States imposed tariffs of up to 145 percent on Chinese imports, effectively halting bilateral trade. The Trump administration also targeted India with a 26 percent import tariff, with even higher rates applied to other Asian countries. In a recent post, President Trump described an 80 percent tariff on Chinese goods as ‘fair.’
Data indicates that despite the 145 percent tariff hike and discussions of a de facto embargo and hard decoupling, US imports from China only fell by 21 percent year-on-year (YoY) in April. This suggests that US importers were shouldering the significant tariff costs. Anecdotal evidence supports this, indicating that many Chinese exports lack clear or easily obtainable substitutes.
An analysis from ING Economics stated: “Before Trump's Liberation Day surprise prompted retaliation,
China's earlier responses to US tariff escalations were measured to preserve the possibility of negotiations. Restoring tariff levels to this state has reopened the door for those negotiations. We previously identified the fentanyl issue as an area with potential for cooperation, and indeed this was highlighted by US Treasury Secretary Scott Bessent following the talks in Switzerland.”
Returning to normal trade
China's exports comfortably exceeded market expectations in April, rising 8.1 percent year-on-year (YoY). Although this marked a decline from the 12.4 percent YoY growth recorded in March, it was significantly above consensus forecasts of 2 percent. This robust performance cannot be attributed solely to base effects, as month-on-month growth was also positive at 0.6 percent. This rate of growth further boosted year-to-date export growth to 6.4 percent YoY, up from 5.8 percent in the first quarter.
This month's report focuses heavily on China's exports to the US, which slowed sharply to -21 percent YoY in April, compared to a 9.1 percent YoY decline in March. While this represents a substantial drop, it was less severe than many had anticipated, considering the 145 percent US tariff on Chinese goods and multiple reports of cancelled shipments to the US.
Imports remained in contraction territory in April, registering a decline of -0.2 percent YoY. However, this was an improvement from the -4.3 percent YoY decline recorded in March and was significantly better than market expectations, which had predicted a sharper contraction. The positive surprises in both imports and exports brought the trade balance close to market projections, with a US$96.2 billion trade surplus in April, slightly exceeding consensus forecasts.
The reduction of tariffs on China back to 30 percent is expected to enable a near return to normal trade. At this tariff level, exporters, importers, and consumers will likely share the burden of the tariffs, allowing overall business activity to resume. Historically, the 20-30 percent tariff levels seen during the first quarter corresponded with a 5 percent YoY increase in exports to the US, although this figure may be somewhat inflated by trade frontloading.
Outlook
After a decline of one-fifth, China's exports to the US in May and June are expected to rebound sharply, as importers with depleted inventories take advantage of the ceasefire to resume imports. Depending on the progress of trade talks, we could witness a frontloading of exports again in July and August, particularly if there remains a lack of clarity about a longer-term agreement as the 90-day period approaches its later stages.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
