The 90-day tariff pause between the U.S. and China, announced on May 12, 2025, significantly reduced tariffs—U.S. tariffs on Chinese imports dropped from 145% to 30%, and Chinese tariffs on U.S. goods fell from 125% to 10%. This temporary truce has notable effects on China’s economy and the global economy, though uncertainty persists.
Effects on China’s Economy
Relief for Export-Oriented Industries:
The tariff reduction to 30% eases pressure on Chinese exporters, particularly in manufacturing, electronics, and textiles, previously facing near-embargo-level duties. Factories can resume shipments, with businesses frontloading orders to leverage lower tariffs.
However, the 30% tariff, plus existing duties (e.g., 97.5% on some footwear), remains costly, forcing companies to raise prices or absorb losses, straining profit margins.
Economic Stabilization but Persistent Challenges:
China’s GDP growth for 2025 is projected at around 4.5%, missing the 5% target, partly due to tariff impacts. The pause mitigates some damage, with the economy slightly less contracted than under full tariffs.
Despite strong Q1 2025 growth of 5.4%, driven by export frontloading, structural issues like factory closures and layoffs persist. Stimulus measures, including subsidies and service consumption initiatives, aim to offset tariff effects, but their success is uncertain.
Strategic Trade Diversification:
China is pursuing alternative trade partners to reduce U.S. market reliance, strengthening ties with Southeast Asia, the EU, and ASEAN. This aims to cushion tariff impacts but may not fully offset lost U.S. market access if tariffs rise post-pause.
Effects on the Global Economy
Market Stabilization and Reduced Recession Fears:
Global stock markets rose after the pause, with improved investor confidence. The dollar strengthened, and demand for safe-haven assets like gold fell. However, markets remain volatile due to uncertainty about a permanent deal.
Trade Flow Resumption:
The tariff cuts spurred a surge in global trade, especially from China, as companies rush to ship goods before the 90-day window closes. This benefits supply chains, particularly in Asia, though baseline 10% tariffs and sector-specific duties (e.g., 25% on steel) continue to disrupt trade.
Mixed Regional Impacts:
North America: The U.S. economy faces a long-term size reduction of 0.6% due to tariffs, with Canada hit harder at 2.2%. The pause offers temporary relief but doesn’t reverse all damage.
Europe: The EU sees a slight 0.1% economic boost, having paused its retaliatory tariffs. The UK, with a new U.S. trade deal, gains 0.2% but faces sub-1% growth due to weak global demand.
Asia-Pacific: Export-dependent nations like South Korea and Taiwan remain vulnerable, while India and the Philippines are more insulated. Least-developed countries may benefit from trade diversion but face risks if tariffs resume.
Inflation and Consumer Costs:
The pause reduces immediate inflationary pressure, but the 30% U.S. tariff still raises costs for consumers, especially for retail goods like footwear and electronics. Price hikes and rising supply chain costs persist as firms frontload orders.
Lingering Uncertainties
Temporary Nature of the Pause: The 90-day truce doesn’t resolve U.S.-China trade imbalances or issues like fentanyl, leaving businesses cautious. If no deal is reached, tariffs could revert to 145% (U.S.) and 125% (China), potentially halting significant bilateral trade.
Policy Volatility: Unpredictable U.S. trade policy dampens global investment and economic activity. Even if tariffs are permanently lowered, trust in trade stability is eroded.
Recession Risks: While the pause reduces immediate recession fears, residual tariffs and policy uncertainty could trigger a global downturn, with the U.S. economy shrinking in Q1 2025 and world trade volumes slightly declining.
Conclusion
For China, the tariff pause provides short-term relief by stabilizing exports and easing manufacturing contraction, but high residual tariffs and structural challenges limit recovery. Globally, the pause boosts markets, resumes trade flows, and mitigates recession risks, but benefits are uneven, with North America and parts of Asia facing headwinds. The temporary truce and unresolved U.S.-China tensions keep uncertainty high, with the next 90 days critical for a lasting deal to avert further disruption.
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