President Donald Trump’s trade war truce with China still leaves a hefty 30% tariff in place, at least for the time being.
On Monday, the White House announced that the U.S. and China had agreed to lower trade barriers with one another, simmering down a trade war that had exploded last month. The U.S. will pause the harshest tariffs for 90 days, while leaving a 10% “baseline” tariff in place, along with a 20% tariff that Trump said was to push China to crack down on fentanyl smuggling to the U.S. Tariffs of 25% remain on certain products including steel, aluminum, and automobiles.
Although the trade deal announced Monday was a significant reduction and raised hopes that negotiations could further reduce import taxes, tariffs are still far higher than they were before Trump started raising them.
The effective tariff rate on all U.S. imports after the tariff announcement is 15%, down from 24%, Abigail Watt, an economist with UBS, estimated in a commentary. Before Trump took office for the second time, the average tariff rate was 3%, according to an estimate by the Peterson Institute for International Economics.
Economists predict merchants will pass those import taxes on to consumers, meaning the tariffs could push up the cost of living and risk reigniting high inflation. Lowering the tariffs reduces those risks, economists said.
“The outcome of the U.S./China talks this weekend seem to take us back to pre-‘Liberation Day’ levels,” Jim Reid, research strategist at Deutsche Bank, wrote in a commentary. “Increasingly, it’s as if the last six weeks have been a bad dream and never actually happened.”
Dialing back the trade wars could help the economy on several fronts.
“This helps the economy in the short run,” Jon Hilsenrath, senior advisor at StoneX, wrote in a commentary. “Tariffs squeeze corporate profit margins, so reducing them will help boost profits and stock values. Households will see their 401(k) retirement plans improve, which could help consumption. It also reduces the risk of consumer price inflation and shortages on store shelves. It will relieve some anxiety at the Federal Reserve about inflation; it could help to hold down interest rates. That’s all good news.”