The ongoing tariff negotiations with China are among a handful remaining to complete the new US global tariff regime. The “pause” on a “tit-for-tat” process – one that saw each country’s tariff rate on the other escalate to well over 100%, effectively paralyzing trade – has just been extended for another 90 days (to November 10th). President Trump noted his “very good relationship” with President Xi and expressed that negotiations have been progressing “quite nicely.”
Extending this truce is clearly in the short-term interest of both economies. However, aligning their longer-term interests will prove exceptionally challenging, especially as the issues at play extend far beyond economics. Domestic politics, geopolitics, and national security are also casting a large shadow over these discussions.
As a reminder, starting in 2017-18, China-US tariff rates steadily increased on both sides. At the start of President Trump’s current Administration, the average effective rates had reached some 51% (US on China) and 33% (China on US). They then rapidly escalated to 145% and 125%, respectively, before being paused at 30% and 10%. This pause also relaxed some of the quantitative restrictions that the countries were imposing on each other.
The 90-day extension serves both countries’ interests. For the US, it helps eliminate the risk of “empty shelves for Christmas.” China, in turn, gains more time to consider its necessary mix of internal economic adjustments and export rerouting strategies.
This pause also comes as a significant relief to much of the global economy, as it avoids a potential breakdown in one of the world’s most critical trading relationships, which would undoubtedly undermine already fragile global growth dynamics. For the EU and UK, in particular, it lowers the immediate threat of China significantly rerouting exports to their markets.
Turning this pause extension into something more permanent, however, is far from guaranteed. This is an arena where economics profoundly interacts with domestic politics, geopolitics, and national security.
Achieving a lasting resolution will require highly skillful negotiations, likely culminating in a Summit between the two presidents. Also. like America’s current tariff tensions with India, this process also involves aspects relating to the ongoing Russia-Ukraine war, adding further layers of complexity.
Given these intricate dynamics and other ongoing negotiations, it remains premature for economists to confidently assess the full domestic and international macroeconomic implications of America’s evolving tariff regime. The only certainty at this stage is that outcomes are likely to vary significantly across countries, sectors, and individual companies – especially considering the inherent differences in tariff rates and sensitivity, pricing power, demand elasticities, and levels of resilience.
