On May 12, 2025, the United States and China announced a trade truce to ease their ongoing trade war. This agreement, aimed at reducing tariffs and countermeasures, marks a significant step toward stabilizing international trade and fostering economic cooperation between the two global powers.
Tariff Reductions
Scaling Back Trade Barriers
The truce includes substantial tariff reductions. The U.S. will lower its tariffs from 145% to 30%, while China will reduce its tariffs from 125% to 10%. However, tariffs imposed before April 2, 2025, on products like electric vehicles and steel, will remain in place, reflecting a partial but significant compromise.
Non-Tariff Measures
Pausing Restrictive Policies
China has agreed to suspend non-tariff barriers introduced since April 2, 2025. These include restrictions on rare earth exports and blacklisting of certain U.S. firms. While this move signals a willingness to de-escalate, the details of how these measures will be rolled back remain unclear.
Rare Earths Uncertainty
Challenges for U.S. Industries
The agreement does not explicitly address whether China’s rare earth restrictions will be lifted, creating uncertainty for U.S. companies dependent on these critical materials. The absence of clear mention of the U.S. in China’s announcement adds complexity to the supply chain dynamics for industries reliant on rare earths.
Long-Term Economic Goals
Reforming Trade Dynamics
The truce aligns with the broader objective of transforming China’s mercantilist export-driven economy into a balanced consumer economy. Such a shift could help reduce the U.S. trade deficit with China. Achieving this goal will require significant economic reforms in both nations to promote sustainable trade practices.
Challenges and Future Outlook
Navigating Complexities
Despite the truce, challenges persist. Tariffs are unlikely to return to pre-Trump levels, and deep economic reforms in China remain a complex issue. The U.S. must also carefully manage its fiscal policies and trade strategies to avoid worsening trade imbalances, ensuring the truce leads to lasting economic stability.
Key Facts About the U.S.-China Trade Truce
- Announcement Date: May 12, 2025
- U.S. Tariff Reduction: From 145% to 30%
- China Tariff Reduction: From 125% to 10%
- Non-Tariff Barriers: China to pause measures like rare earth export controls and blacklisting
- Rare Earths: Uncertainty persists on lifting restrictions
- Long-Term Goal: Shift China to a balanced consumer economy
- Challenges: Sustaining tariff reductions and implementing economic reforms