We and China will reach a transaction to significantly reduce tariffs, officials say
The US and China have agreed to a contract to reduce mutual tariffs for now and have agreed to a 90-day suspension following consultations in Switzerland.
The weekend-long US-China agreement is expected to drive the expected US economic growth this year, reduce inflation and reduce the risk of a recession, in order to significantly reduce mutual tariffs during the 90-day suspension in the trade war, economists say.
However, some predictors warned that there is no guarantee that a ceasefire will be maintained after a three-month break and the two countries were unable to reach wider deals during President Donald Trump’s first term.
Is the stock market improving?
For now, the agreement supports investors. Early in the afternoon, the Dow Jones industrial average rose about 900 points, while the S&P 500 index rose 2.5%.
What is your current economic outlook?
Chief economist across the country, Kathy Boss Jansick predicts that the US economy will be down from the fourth quarter of 2024 until the end of this year, from previous forecasts of flat growth in 2025, from nearly 3% expansion in the economy last year.
UBS is a bit less bullish and expects economic output to increase by 0.4%.
Is inflation expected to improve?
Bostjancic expects inflation currently running around 2.5% when some measurements are averaged, peaking at 3.4% by the end of the year from the previous 4% estimate.
“The US and China have helped to cut the embargo fees significantly more than expected and avoid the recession,” Boss Jansick wrote in a note to his client on Monday.
Is the US in a recession?
Ryan Sweet, chief economist at Oxford Economics, said he has reduced the odds of this year’s recession from 50% to over 35%.
What is the agreement between the US and China?
Under the agreement, the US agreed to lower mutual tariffs on Chinese imports from 145% to 30%, but China’s duties for US shipments will fall from 125% to 10%. China has also agreed to eliminate “non-financial” trade barriers, such as China’s ban on exports of important minerals.
Large tariffs, along with low rates for imports in other countries, are expected to significantly increase prices for US consumers and adopt purchasing power, resulting in high inflation and slow tandems of growth, or stagflation.
According to UBS, the suspension of top duties in China still leaves the average US tariff rate, along with a 90-day suspension of double-digit import taxes in dozens of other countries last month. This is down from 24% before the China deal, but is well above the 2% before Trump took office, averaging 3% to 3%.
The expected growth remains weaker than expected before Trump took office, but the deal should significantly reduce the chances of a recession, the economist said.
Large retailers had predicted a disastrous product shortage and empty store shelves ahead of the return to school and holiday shopping seasons. Sweet said that supply chain stress is “mitigated” by contracts.
However, he added, “As tariffs are used as a negotiation tactic, future escalations are possible, if not possible.”
In a note to clients, Capital Economics said, “There is no guarantee that a 90-day ceasefire will give way to a permanent ceasefire.”
Both sides launched so-called “comprehensive economic dialogue” during the trade war between Trump and China in his first term in 2017, the investigator noted.
“Trump cancelled the initiative later in the same year that the tariffs continued, failing to make any meaningful progress between the two.