China and the United States agreed to de-escalate their trade war by significantly lowering tariffs for each other and forming a mechanism to start a trade negotiation in the next 90 days.
According to a US-China joint declaration released on Monday, the US will reduce its tariffs on Chinese goods from 145% to 30%. This includes a 10% tariff that most other countries face and a 20% tariff pending China’s effort to stop the exports of fentanyl precursors to America.
The 30% tariff is in addition to an average 20% tariff imposed by the US during the Trump administration’s first trade war against China in 2018. That means the US still has a 50% tariff on imports from China.
At the same time, China will lower its tariffs on US goods from 125% to 10%. Bloomberg reported on May 2 that China has already exempted its reciprocal tariffs of 125% on around $40 billion of American goods, equivalent to a quarter of total imports from the US.
The tariff cuts, which will take effect on May 14, were more than expected, as US President Trump had said in a social media post on May 9 that “80% tariff on China seems right!”
Due to the de-escalation of the US-China trade war, Hong Kong’s Hang Seng Index rose 3% to close at 23,549 on Monday.
The new development came after US Treasury Secretary Scott Bessent met with Chinese Vice Premier He Lifeng in Switzerland on May 10 and 11.
In a joint declaration on Monday, Washington and Beijing said they will establish a mechanism to continue discussions about economic and trade relations.
He Lifeng will represent the Chinese side, while Bessent and United States Trade Representative Jamieson Greer will represent the US side. Upon agreement of the two sides, they will hold meetings alternately in China, the US, or a third country. The two sides may also conduct working-level consultations on relevant economic and trade issues.
“The US has canceled 91% of the additional tariffs, and China has canceled 91% of the counter-tariffs. The US has suspended the implementation of a 24% ‘reciprocal tariff’ and China has also correspondingly suspended the implementation of a 24% counter-tariff,” a spokesperson of the Chinese Ministry of Commerce (MoC) said on Monday.
“It is hoped that the US will continue to work with China based on this meeting, thoroughly correct the wrong practice of unilateral tariff hikes, continuously strengthen mutually beneficial cooperation, maintain the healthy, stable and sustainable development of China-US economic and trade relations and jointly inject more certainty and stability into the world economy,” the spokesperson said.
Yuyuan Tantian, a social media account operated by the state-owned China Central TV, which has access to top decision makers in the Chinese Communist Party (CCP), said the He-Bessent meeting has brought out three signals:
- The atmosphere of the talks was candid, in-depth, and constructive. The two sides could reach a consensus due to two factors. First, China had resolutely countered to safeguard its own interests, which had led to both sides raising tariffs to a level equivalent to prohibitive tariffs; second, the US side, having misjudged the current situation and overestimated its capabilities, has made itself very proactive, urgent and problem-solving-oriented in the discussions.
- China and the US have agreed to establish a trade consultation mechanism to maintain communication. Both sides will decide the time and place of future communication.
- Any possible discussion results between both sides must align with China’s development interests.
Yuyuan Tantian said China’s decision to retaliate against Trump’s “reciprocal” tariffs contributed to the substantial progress of an agreement between China and the US.
‘Resilient supply chains’
Bessent told CNBC on Monday that the trade agreement reached over the weekend represents progress in “strategic decoupling” from China.
“We do not want a generalized decoupling from China, but what we do want is a decoupling for strategic necessities, which we were unable to obtain during Covid,” Bessent said. “We realized that efficient supply chains were not resilient supply chains.”
“We are going to create our own steel to protect our steel industry, and work on critical medicines and semiconductors. So we are doing that, and the reciprocal tariffs have nothing to do with the specific industry tariffs,” he added.
He said the latest trade agreement represents another stage in the US shaking its reliance on Chinese products.
Commenting on the fentanyl issue, Bessent said, “We saw here in Geneva that the Chinese are now serious about assisting the US in stopping the flow of precursor drugs, because the Chinese brought their trade delegation led by the vice premier but they also brought a deputy minister for security, who was their fentanyl expert.”
He said US national security officials had a very long and in-depth talk with their Chinese counterparts about how the two countries could work together on the fentanyl issue.
The Chinese national security official who joined the He-Bessent meeting is China’s Public Security Minister Wang Xiaohong, who is also deputy secretary of the Central Political and Legal Affairs Commission of the Chinese Communist Party.
Unwanted Chinese goods
After Trump imposed tariffs on almost all countries on “Liberation Day” (April 2), media reports said many Chinese factories lost all their US orders, while some faced financial difficulties as Chinese exporters cancelled their orders without compensation.
According to China Customs, the country’s total imports decreased 0.3% to US$220.1 billion in April from a year ago. China’s imports from the US fell 13.8% to $12.6 billion for the same period.
China’s total exports grew 7.9% to $315.7 billion in April from $292.5 billion a year earlier, faster than the 5.7% year-on-year growth recorded in the first quarter of this year.
A calculation can show where Chinese manufacturers shipped their unwanted goods during the trade war.
For example, China’s exports to Vietnam increased 22.5% year-on-year to $17.1 billion in April. However, if there had been no “Liberation Day,” the April figures could have maintained the first quarter’s 15.6% growth rate to grow to $16.2 billion. This means that Trump’s tariff war might have helped boost China’s exports to Vietnam by $975 million last month.
Under this calculation, about $10.9 billion of Chinese goods were not shipped to the US in April. The decline was entirely offset by China’s increased exports to Africa ($2 billion), Latin America ($1.6 billion), Singapore ($1.8 billion), Indonesia ($1.4 billion), Germany ($1.2 billion), Vietnam ($975 million), Malaysia ($972 million), India ($745 million), and Thailand ($714 million).
On April 9, the Trump administration announced a 90-day pause on tariffs for most countries and imposed only a 10% tariff on them. It will probably make tariff decisions based on whether a country is willing to lower its tariffs on American goods, take the initiative to reduce its trade surplus with the US, and limit the re-export of Chinese goods to the US.
Read: US, China have started to speak more diplomatically of each other
