The US and China have agreed to a 90-day truce on most tariffs, sparking a frantic race to import goods before the deadline. This temporary reprieve, following intense negotiations in Geneva, signals a mutual recognition of interdependence, but leaves many questions unanswered. The immediate impact is expected to be a surge in trans-Pacific trade as businesses rush to stockpile goods while tariffs are reduced from a staggering 145% to 30% for US imports from China, and from 125% to 10% for Chinese imports from the US. This temporary decrease excludes President Trump’s 20% tariffs on fentanyl-related products and doesn’t reinstate the de minimis exemption previously enjoyed by e-commerce companies like Temu and Shein.
This flurry of activity is already evident. Stock markets reacted positively, with significant gains across major indices. Flexport CEO Ryan Petersen reported a 35% increase in ocean freight bookings from China to the US in just one day following the announcement, highlighting the urgency among businesses to capitalize on the reduced tariffs. However, this rapid increase in demand also raises concerns about potential shipping cost increases and challenges for smaller businesses with limited cash flow and storage capacity.
While the short-term outlook is characterized by this import rush, the long-term implications of the 90-day negotiation remain uncertain. Experts anticipate a comprehensive deal addressing complex issues like China’s industrial policies, intellectual property theft, fentanyl trafficking, US export controls, investment restrictions, and pending fees on Chinese ships. Negotiators face a daunting task of narrowing down this broad agenda to achieve mutually acceptable concessions within the limited timeframe. The success of the negotiations will hinge on both countries’ ability to navigate their respective political pressures and find common ground on contentious issues.
Despite the market’s optimistic reaction, Federal Reserve Board Governor Adriana Kugler expressed caution. She noted that even at the reduced levels, tariffs remain higher than in recent decades, potentially causing negative supply shocks and impacting real income. She also pointed to the persistent inflation, above the 2% target, and predicted slower economic growth than the previous year’s 2.5%. This cautious perspective underscores the complexities and ongoing uncertainties involved in the US-China trade relationship, even with the temporary tariff truce in place.
