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US China Trade War Paused — Clear Market Positive

In a joint statement, the United States and China have agreed to a 90-day reduction of tariffs, with the U.S. tariff on Chinese goods at 30% (10% plus the 20% fentanyl-related tariffs) and the Chinese tariff on U.S. goods at 10%. In the announcement, China has agreed to “remove the nontariff countermeasures taken against the United States since April 2, 2025,” and talks addressed China’s restrictions on the export of certain rare earth minerals. The U.S. and China have agreed to a series of follow-up negotiations over the next 90 days. This is a clear market positive and the 30% tariff is lower than expected (given reports that it could be 50%, 80% etc.). In the next 90 days, we will be watching negotiations closely and expect to see volatility. Additional relief on penalties on Chinese-flagged vessels, progress on the 20% fentanyl-related tariffs, and the impact on the status of the de minimis exemption remain important provisions to track.

What’s included? A 90-day pause of tariffs implemented through three executive orders by President Trump and China’s removal of tariffs and non-tariff countermeasures were announced as part of a joint statement of the U.S. and Chinese government on Monday, May 12, 2025. This announcement will bring U.S. tariffs on Chinese goods from 145% to 30% and Chinese tariffs on U.S. goods from 125% to 10%. This announcement follows meetings over the weekend between U.S. Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer, and Chinese Vice Premier He Lifeng.

In the announcement, China will suspend its non-tariff countermeasures implemented since April 2, which we understand to include restrictions on certain critical minerals. We view this as one of the most important aspects of the announcement, as U.S. industrial production would be significantly impaired within six to nine months without this change. Reports have generally been conflicting, and it is unclear which pre-April 2/broader export controls that they will keep in place and/or strengthen. However, this remains a critical issue to monitor and something that will highly incentivize the U.S. to cut a deal.

What’s not included? No changes to penalties of up to $1.5 million for a Chinese made ship entering a U.S. port. The joint statement discusses reductions to the “ad valorem rate of duty” but does not make mention of the “per postal item containing goods duty,” which has increased the cost of shipping on goods that previously relied upon the de minimis exemption. In our conversation with our contacts, they have highlighted the penalty on Chinese-made ships as having a greater impact than the tariffs on Chinese goods, creating incentives for shipments to avoid U.S ports and creating a hub and spoke model for Canadian, Mexican, and Caribbean ports. These penalties will increase costs and delay shipments into the U.S. Sectoral tariffs are not included in this announcement.

Impact for sectoral tariffs. We continue to expect tariff announcements for semiconductors and pharmaceuticals in coming weeks, which are likely to be set at a rate of at least 25%. Other trade investigations, including a potential export ban on copper and on critical minerals, remain ongoing. In press remarks this morning, Bessent highlighted that while the U.S. is not seeking to fully decouple from China, “what we do want is a decoupling for strategic necessities.” In his comments, he specifically highlighted steel, medicines, and pharmaceuticals — all of which have been through/are currently in the process of a Section 232 trade investigation.

However, with China addressing its export ban on rare earth minerals as a part of this pause, there is an argument that this lowers the chance of a ban on copper scrap exports to China.

Next steps. Per the announcement, the U.S. and Chinese delegations will continue to meet over the next 90 days. Meetings will be held in the U.S., China, and potentially other countries. We expect Treasury Secretary Bessent and USTR Greer to lead the talks for the United States, which we view as a net positive. Any trade deal will be subject to President Trump’s approval, which we expect will come with periods of volatility. The reduction of an effective tariff to 30%, with the ability to go lower if progress is made on the 20% fentanyl-related tariffs, is better than expected and well below the 80% President Trump teased on social media last week. The 145% from the U.S. and 125% from China was a functional embargo.

Statement (bolded for key portions and links to relevant executive orders).

“The Parties commit to take the following actions by May 14, 2025:

The United States will (i) modify the application of the additional ad valorem rate of duty on articles of China (including articles of the Hong Kong Special Administrative Region and the Macau Special Administrative Region) set forth in Executive Order 14257 of April 2, 2025, by suspending 24 percentage points of that rate for an initial period of 90 days, while retaining the remaining ad valorem rate of 10 percent on those articles pursuant to the terms of said Order; and (ii) removing the modified additional ad valorem rates of duty on those articles imposed by Executive Order 14259 of April 8, 2025 and Executive Order 14266 of April 9, 2025.

China will (i) modify accordingly the application of the additional ad valorem rate of duty on articles of the United States set forth in Announcement of the Customs Tariff Commission of the State Council No. 4 of 2025, by suspending 24 percentage points of that rate for an initial period of 90 days, while retaining the remaining additional ad valorem rate of 10 percent on those articles, and removing the modified additional ad valorem rates of duty on those articles imposed by Announcement of the Customs Tariff Commission of the State Council No. 5 of 2025 and Announcement of the Customs Tariff Commission of the State Council No. 6 of 2025; and (ii) adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025.

After taking the aforementioned actions, the Parties will establish a mechanism to continue discussions about economic and trade relations. The representative from the Chinese side for these discussions will be He Lifeng, Vice Premier of the State Council, and the representatives from the U.S. side will be Scott Bessent, Secretary of the Treasury, and Jamieson Greer, United States Trade Representative. These discussions may be conducted alternately in China and the United States, or a third country upon agreement of the Parties. As required, the two sides may conduct working-level consultations on relevant economic and trade issues.”

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This article was originally published by Raymond James at: https://www.raymondjames.com/commentary-and-insights/markets-investing/2025/04/21/tariffs-and-policy-uncertainty-weighs-on-economic-and-investing-outlooks

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