Is The U.S.-China Trade War Over?

Published: Monday, May 12, 2025 at 8:41 am

U.S.-China Trade War: A Temporary Truce or a Lasting Peace?

Recent announcements of significant reciprocal tariff reductions between the United States and China have injected a dose of optimism into the global markets. Following talks between U.S. and Chinese officials, both nations have agreed to slash tariffs by over 115 percentage points for a 90-day period. This means U.S. duties on Chinese goods will drop from 125% to 10%, and China will reciprocate, reducing its tariffs on U.S. goods to 10%. However, a separate 20% tariff on Chinese goods related to fentanyl remains in place.

This move echoes a similar pattern observed during President Trump's first term, where initial tariff escalations were followed by periods of negotiation and eventual reductions. In 2019, the S&P 500 experienced a significant rally after an initial dip, suggesting a potential for market recovery this time around.

However, the path to a lasting trade resolution is not without its hurdles. Public sentiment towards tariffs, particularly in the U.S., could influence policy decisions. A strong public backlash could pressure business leaders and politicians to advocate for further changes. China's stance also presents a challenge. While willing to negotiate, President Xi Jinping may be hesitant to make significant concessions, especially in the face of a potentially confrontational U.S. administration.

Broader economic risks also loom. The combined impact of tariffs, taxes, and deportation policies in 2025 creates vulnerability to credit rating downgrades and could erode foreign investor confidence. This could lead to decreased demand for U.S. Treasuries and potentially threaten their "safe haven" status, raising the specter of market turmoil.

The current agreement offers a positive step towards trade normalization, but investors should remain cautious. The temporary nature of the tariff reductions, the persistent fentanyl-related tariff, and the broader economic vulnerabilities warrant continued vigilance. The focus now shifts to whether this initial agreement will hold and evolve into a more durable trade framework.

BNN's Perspective: While the tariff reductions are encouraging, it's crucial to temper expectations. The 90-day window is short, and underlying tensions remain. The market's reaction will be telling, but investors should be prepared for potential volatility as both sides navigate this complex economic relationship. A long-term resolution will require more than just tariff adjustments; it will necessitate addressing the fundamental issues driving the trade war.

Keywords: U.S.-China trade war, tariffs, tariff reductions, S&P 500, market rally, China, United States, trade negotiations, global economy, President Trump, fentanyl, economic risks, investment, market volatility, trade agreement.

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