The stock market is giddy on a tariff reprieve, but what’s really changed?
A 90-Day Walk Back
The Wall Street Journal reports U.S., China Agree to Large Tariff Cuts; Stocks Surge
President Trump’s “reciprocal” tariff on China will fall to 10% from 125%.
A separate 20% tariff the president imposed over what he described as China’s role in the fentanyl trade will remain.
Beijing will cut its retaliatory levies on U.S. goods to 10% from 125%.
The U.S. said reductions will last 90 days while talks continue.
Treasury Secretary Scott Bessent said meetings over a fuller deal would likely start in the next few weeks, but it would be implausible for reciprocal tariffs on China to fall below 10%.
President Trump said the trade talks achieved a “total reset” with China, calling it a very good deal, and said he might speak to Chinese leader Xi Jinping at the end of the week.
Monday’s news will be taken as a win for China, which adds risk that the truce could fall apart, said Inga Fechner, senior economist at ING. “I wouldn’t even bet on this 90-day tariff pause to hold,” Fechner said in an interview.
She said the U.S. trade deficit with China could widen as businesses restock inventories to take advantage of the lower rates. The key question, she added, is if U.S. negotiators can extract commitments from Beijing that can be presented as a win.
With an effective tariff rate of 40%, Chinese exports to the U.S. are likely to fall by up to one-third, estimates Williams at Capital Economics. While exports would have fallen far more with tariffs above 100%, this will still mark a dramatic decline in trade between the two largest economies.
145 percent tariffs now back to 10 percent plus another 20 percent for fentanyl and a more for steel and iron.
This will slow trade but not crucify it.
However, 40 percent is a lot for US small manufacturers dependent on China supply chains.
The US loses in slower growth, retaliations, and higher prices. Small businesses get clobbered.
For discussion, please see Small Businesses Will Get Hit the Hardest by Trump’s Tariffs
Small businesses were already struggling. Tariffs will end the viability of many.
The DOW is up over 900 points as I type, about 2.3 percent. The Nasdaq is up 674 points, about 3.75 percent.
Gold is down by $112 dollars.
Long term treasuries are getting hit. The 10-year treasury yield is up 8 basis points to 4.5 percent. And the 30-year long-bond is up 5 basis points to 4.88 percent.
But fiscally and fundamentally, what’s really changed?
It makes even more sense for Jerome Powell and the Fed to wait.