US-China Agree to Temporary Tariff Truce Deal

US-China Agree to Temporary Tariff Truce Deal

Why in the News ?

The US and China have agreed to a 90-day pause in their trade war following talks in Geneva, temporarily reducing tariffs and non-tariff barriers. This truce comes amid economic strain and growing fears of recession and stagflation.

Background of the Tariff War:

• Trade tensions began with US tariffs on Chinese goods due to the fentanyl crisis.
• On April 2 (“Liberation Day”), the US imposed 34% tariffs on Chinese imports; China retaliated with 125% tariffs.
• By April 10, US tariffs had reached 145%, while China’s hit 125%, causing severe cost escalation.
• China also imposed non-tariff barriers like export controls on rare earth minerals and actions against US companies.
• The US rationale: a $1.2 trillion trade deficit, with claims that other nations protect and subsidize their industries.

The Truce: What Has Changed?

• Post-Geneva, both sides agreed to lower tariffs to a base rate of 10% (China) and 30% (US).
• Non-tariff barriers from China have been temporarily suspended.
• The truce aims to avoid recession and stagflation, which had begun to affect the US economy.
• The US economy shrank in Q1 2025, raising fears of further contraction.
• The agreement is not a full deal, just a pause to initiate formal talks.

Current Implications and Way Forward

• China appears to have weathered the tariff war better, with overall exports growing by 8% and a $96 billion trade surplus.
• The US, facing rising prices and recession risks, had more to lose.
• Markets reacted positively: stocks and oil prices rose, safe haven assets like gold fell.

The truce provides relief but uncertainty remains, as negotiations could still become contentious.