Since April 2, when US President Donald Trump announced his policy of reciprocal tariffs and sought to upend the global trading architecture, the world economy has been in a state of uncertainty. While in the months thereafter, the US negotiated deals with several countries that appear to be loaded in favour of Washington, pacts with other countries, including India, are still in the works. China pushed back strongly against Trump’s tariffs, raising fears of a long, drawn-out trade war. Beijing’s curbs on rare earths exports underlined its pivotal position in the global economy and its leverage in trade negotiations. But, in the past few weeks, Trump has sought to downplay the points of contention with both China and India. While a meeting with Prime Minister Narendra Modi is yet to take place, on Thursday, the US President met his Chinese counterpart, Xi Jinping, on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea. The meeting marks a clear de-escalation in the trade war between the two countries.
As per reports, the Trump administration has agreed to lower the tariffs on China. In exchange, China is said to have paused controls on exports of rare earths for a year, along with agreeing to restart purchasing US soyabean and take action on the illicit fentanyl trade. The two leaders reportedly sidestepped several contentious issues, such as Taiwan. The Russia-Ukraine war was discussed. But the issue of China’s purchases of Russian oil was reportedly not broached — that’s odd, considering that the purchase of Russian energy by India has been a major sticking point in India-US relations. Trump is now slated to visit China in April next year — this signals his intent to continue the process of stabilising relations.
Since Trump unleashed the tariff war, there has been much concern over the US economy. Yet, even as the Yale budget lab estimates that the average effective tariff rate has moved up to 18 per cent — the highest since 1934 — the US economy seems to be powering on. Some are, however, arguing that this growth is being largely driven by AI-related investments, while the other parts of the economy are struggling. As per researchers at Moody’s Analytics, a large number of states in the US are either in recession or treading water. The labour market data reflect this. As per JP Morgan Chase, real income growth has slowed to near-decadal lows. In its October meeting, the US Federal Reserve also acknowledged this, saying that “job gains have slowed this year, and the unemployment rate has edged up”. The Fed opted for cutting interest rates by 25 basis points, noting that “uncertainty about the economic outlook remains elevated”. But Fed Chair Jerome Powell also warned that another rate cut in December was “not a foregone conclusion”. The resolution of some of this uncertainty over the growth outlook, jobs, inflation, and interest rates depends on how Trump’s tariffs play out.
