The United States and China have extended their tariff deadline for another 90 days, preventing an escalation of the trade war between the world’s two largest economies, with markets rallying after President Donald Trump announced the pause.
With the extension, the imposition of higher tariffs on China will be suspended until November 10, with all other elements of an existing truce – which was set to expire on Tuesday – to remain in place.
“The United States continues to have discussions with the PRC to address the lack of trade reciprocity in our economic relationship and our resulting national and economic security concerns,” Trump’s executive order stated, using the acronym for the People’s Republic of China.
China’s Ministry of Commerce issued a parallel pause on extra tariffs early on Tuesday, with the state media reporting that “a measure to further implement the important consensus reached by the two heads of state” would provide stability for the global economy.
So, how significant is the second extension of the tariff truce, and will the two countries sign a trade agreement to prevent a trade war?
What are the terms of the pause?
Beyond the date extension, a fact sheet posted by the White House on Monday didn’t detail any modifications to the trade truce agreed in May. China, in a similar statement, said it would also extend its tariff suspension for 90 days.
On May 11, the two sides agreed to a 90-day tariff pause. From early April until then, US import levies on Chinese goods stood at 145 percent, while Chinese tariffs on US exports were 125 percent – rates that resulted in a virtual trade embargo between the two countries.
But the tariff truce agreed to in Geneva, Switzerland, lowered the temperature by temporarily slashing US tariffs on Chinese imports to 30 percent, while Chinese levies on US exports fell to 10 percent.
Beijing also agreed to resume some rare earth exports critical for the US manufacturing sector, including electronics, aerospace and cars.
Following talks in Geneva, US and Chinese representatives met in London in June and then again in Stockholm, Sweden, last month. After the Stockholm meetings, US negotiators returned to Washington with a proposal that Trump extend the Geneva deadline past August 12.
In the run-up to this latest pause, it’s understood that Trump pushed for additional concessions on Sunday, urging China to quadruple its US soya bean purchases. But analysts questioned the feasibility of his deal, and Trump did not repeat his demand on Monday.
How have stock markets responded?
Financial markets rallied on Tuesday, with Japanese and Australian equities hitting record highs following the trade truce announcement. Japan’s Topix benchmark rose 1.6 percent, as Australia’s S&P/ASX 200 climbed 0.2 percent.
In the US, futures tracking the S&P 500 and Nasdaq indexes edged up 0.1 percent. Meanwhile, oil prices increased. Brent crude futures jumped 0.4 percent to $66.9 a barrel, while US West Texas Intermediate crude futures were up 0.4 percent to $64.2.
Why has Trump been flexible with China on trade?
In recent weeks, US-China negotiations have been on a parallel track to other talks Washington has held with trade partners, as it moved to implement sweeping “reciprocal” tariffs – as well as industry-specific levies – on August 7.
Trump struck agreements to lower tariffs with some trading partners, including the EU and Japan, but hit others like Brazil and Switzerland with swingeing levies. In the case of India, Trump doubled tariffs to 50 percent after New Delhi refused to curb purchases of Russian oil and lower tariffs on US goods.
For Thomas Sampson, a professor of economics at the London School of Economics, trade negotiations between the US and China have “been running on their own track … because the US sees China as a long-term economic rival.”
Sampson told Al Jazeera that “I don’t think it [Washington] sees the EU or other countries in the same way.” He also noted that the “incipient military rivalry between the US and China” means that bilateral negotiations are sensitive.
What makes the trade relationship special?
Trump has consistently criticised Beijing for what he deems to be unfair trade practices – namely import quotas, tax breaks and subsidies. He has even argued that the US’s trade deficit with China, which reached $295.4bn last year, amounts to a national emergency.
China is the US’s third-largest trade partner, after Mexico and Canada. It is heavily reliant on China for manufactured goods – from washing machines and TV sets to clothing.
The US Department of Commerce calculated that mechanical appliances (mainly low to mid-range technology products) made up 46.4 percent of all US imports from China in 2022.
And while US imports from China surged to beat Trump’s tariff bite following his “liberation day” announcement in April, they then dropped in June.
Indeed, the US trade deficit with China fell by roughly a third to $9.5 billion in June – its narrowest level since 2004, according to US Census Bureau data.
The US trade gap with China fell by $22.2bn from March to August. That amounts to a 70 percent drop from one year earlier.
More generally, US Treasury Department data shows that the US generated $124bn from January to July this year from tariffs. This is 131 percent more than the same time last year.
At the same time, the two countries trade goods of vital strategic interest whose importance trumps crude deficit figures. And both sides have been taking steps to reduce flashpoints recently.
For its part, the US has eased some export restrictions on advanced semiconductors – a key demand from China.
On Monday, the Financial Times newspaper revealed that Trump had permitted Nvidia and AMD to export advanced US chips to China. But the tech giants would pay 15 percent of their China sales to the federal government.
Trump had previously barred those deals. Trump’s predecessor, Joe Biden, had also imposed restrictions on US chip exports, as well as banned a range of US high-tech investments in China.
On the flipside, Chinese exports of rare earth magnets have started to recover in recent weeks after it blocked sales to the US in April.
Flows of rare earth magnets – used in everything from clean energy technology to military hardware – from China to the US rose to 353 tonnes in June, up from just 46 tonnes in May.
Still, total shipments were still substantially lower than before Beijing launched its export controls in early April.
Washington has also been pressing Beijing to stop buying Russian oil to pressure Moscow over its war in Ukraine, with Trump even threatening to impose secondary tariffs on China.
US Vice President JD Vance said on Sunday that President Trump has been thinking of imposing tariffs on Beijing.
“Obviously, the China issue is a little bit more complicated because our relationship with China, it affects a lot of other things that have nothing to do with the Russian situation,” Vance told Fox News in an interview.
What will happen next?
This week’s tariff pause may clear the path for Trump to meet President Xi Jinping in late October, when the president is expected to travel to South Korea for the Asia Pacific Economic Cooperation summit.
Until then, the partial tariff moratorium will give both sides time to work through longstanding trade concerns in advance of the potential meeting.
In the US, economists widely agree that the impact of tariffs on Chinese goods has not been fully felt, as many firms have built up their stockpiles of inventories to mitigate the higher duties.
Looking ahead, however, BBVA Research published an analysis last month estimating that US tariffs on China would raise US inflation and slow economic growth later this year.
For Thomas Sampson, “the tariff pause allows them [the US and China] to maintain the status quo, and it wouldn’t be surprising if, after 90 days, they extend it further.”
More broadly, however, he believes that “there is a bipartisan consensus in Washington to push for a de-linking with trade from China.”
Source: Aljazeera
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