United States President Donald Trump said in a social media message that the U.S. and China have come to terms regarding the basis for a trade deal with China.
Various news reports highlighted key aspects of the agreement, which President Trump said is “done, subject to final approval with President Xi and me,” including:
- access to rare earths and magnets, with China to provide the U.S. with full magnets and any necessary rare earth minerals;
- the U.S. will levy a cumulative 55% tariffs on Chinese goods, comprised of 25% on the majority of products announced by the White House during Trump’s first term in office, as well the 20% tariffs related to stopping the flow of fentanyl into the U.S. and the 10% universal tariffs;
- China would apply a 10% tariff on U.S. goods; and
- the U.S. will allow Chinese students to attend college in the U.S.
As reported by LM, last month, the U.S. and China came to terms on a temporary agreement, while meeting in Geneva, Switzerland.
Under the terms of the agreement, the U.S. and China said in a joint statement that, effective May 14, U.S. tariffs on Chinese imports will drop from 145% to 30%, while China will cut its own tariffs on American goods from 125% to 10%. And President Trump’s 20% fentanyl-related tariff will stay in place, but most of the broader trade war measures will be temporarily relaxed. These changes will remain intact for 90 days, through August 12.
Heading into those meetings, the U.S. had 145% tariffs on goods manufactured in China headed to the United States, while China had 125% tariffs on goods manufactured in the U.S. headed to China. These very high tariff levels were the result of retaliatory back-and-forth actions between the countries on various fronts, which had seen tariffs rise significantly since President Trump re-entered the White House in January. Drivers for the tariff measures previously cited by the White House include addressing U.S. trade imbalances, pushing for increased domestic manufacturing, and stemming the flow of fentanyl.
What’s more, since the respective 145% tariffs on Chinese goods and the 125% tariffs on U.S. goods had been in place, going back to April, the subsequent economic impacts were apparent through mid-May, with first quarter U.S. GDP falling to 0.3%, for its first decline, going back to the early days of the pandemic in 2020, and paced by a flurry of U.S.-bound import activity in advance of the expiration of the U.S. 90-day reciprocal tariff pause, set to expire on July 9. As for China, it has seen declining factory activity, coupled with a sharp decline in its exports shipped to the U.S.
That was made clear in data recently issued by Descartes, which observed that U.S.-bound imports from China fell 20.8%, or 804,122 TEU, sequentially, from April to May, representing the steepest monthly decline going back to March 2020, and down 28.5% annually (total Chinese exports to the U.S. fell 34.5% annually, its steepest decline since the early 2020). And China’s share of total U.S. containerized imports decreased to 29.3% for the month, marking its lowest level in more than two years, with the Port of Long Beach and the Port of Los Angeles seeing the largest declines, at 31.6% and 29.9%, respectively.
The ongoing shifts in tariff levels and related announcements has collectively brought about a lingering sense of uncertainty, and by extension, confusion, for global supply chain stakeholders, with the expectation that until there is more clarity, import levels are expected to decline, leading to many unanswered questions as well.
While this agreement represents a solid sign of progress in what can be considered challenging and difficult U.S.-China trade relations, what happens next remains to be seen, in terms of how negotiations go from this point forward.
