US-China tariff pause a welcome reprieve for global economy
A 90-day reduction in tariffs between the US and China is good news, but a deal between the two powers may take longer to hash out, economists have said.
The US and China agreed to a 90-day reduction in tariffs on Monday night following negotiations in Geneva, bringing US tariffs on China down to 30 per cent (from 145 per cent) and Chinese tariffs to 10 per cent (from 125 per cent).
While global markets were buoyed by the tariff pause, economists were sceptical about the odds of China and the US striking a deal within the three-month window.
“Despite the risk-on mood, our international economics team’s view is that 90 days is not long to negotiate a trade deal of this complexity,” Commonwealth Bank economists warned in a research note on Tuesday.
Trade gripes between China and the US run deep, and it is unclear whether China would be receptive to dismantling its ‘non-tariff barriers,’ such as domestic economic stimulus policies.
“They [China] subsidize labor, they subsidize capital goods, and they have exported that to us and to the rest of the world,” US Treasury Secretary Scott Bessent said.
“We have put up tariffs to push back on that, so it will be a matter of what is the equilibrium level on tariffs and also getting China to open their markets for American companies.”
Trump framed the tariff rollback as a decision made out of mercy rather than necessity on the US side and suggested the Chinese economy had been hit badly by the tariffs.
“The talks in Geneva were very friendly, the relationship is very good. We’re not looking to hurt China, China was being hurt very badly,” he told reporters after the deal was signed.
“They were closing up factories. They were having a lot of unrest, and they were very happy to be able to do something with us.”
In a joint statement, the two powers acknowledged the importance of their “mutually beneficial” bilateral trade relationship and committed to "moving forward in the spirit of mutual opening, continued communication, cooperation, and mutual respect.”
The deal came a few weeks after Trump signalled that the US was willing to scale back its prohibitively high tariffs on China, after the latter moved to restrict critical mineral exports, of which it holds a virtual global monopoly.
Rare earth elements are crucial for US national security, being a key element of many of their defence technologies.
Oxford Economics said the tariff pause was positive news for the US economy, but uncertainty around trade policy remained high.
“If the lower tariffs stick, subsequent rallies in equity markets and improved consumer sentiment will support spending, and we'd expect a smaller rise in inflation and unemployment,” Oxford Economics associate economist Grace Zwemmer wrote in a report released Tuesday.
Commentators were also wary of the longevity of the trade deal, given the thorny trade issues that China and the US will have to grapple with over the coming months.
"This is better than I expected … but we also need to keep in mind this is only a three-month temporary reduction of tariffs. So this is the beginning of a long process,” Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, said, as reported by Reuters.
“The two sides will spend months, probably, to come up with a resolution, or reach a final trade deal, but this is a very good starting point."
Treasurer Jim Chalmers welcomed the news of the tariff de-escalation, but warned that it may be too soon to celebrate.
“It is significant, it’s welcome, it’s encouraging. But we need to temper our expectations here, there’s still a lot of unresolved issues, there’s a lot of uncertainty, unpredictability and volatility in the global economy,” Chalmers told ABC Radio on Tuesday.
"Australia has got a lot to lose from a trade war between the US and China in particular, and so we want to see these trade tensions de-escalated permanently, not temporarily.”
