Opinion US-China climbdown in trade war – a welcome pause

The United States and the People’s Republic of China have announced a pause in the ongoing trade war between the two countries. The announcement came after two days of high-level negotiations in Geneva. The two economies have been locked in a tariff war since February 1, when US President Donald Trump imposed a 10 per cent tariff on China, as well as 25 per cent each on Mexico and Canada, citing the sale of fentanyl in the US. Reportedly, in the US, in 2021, deaths due to overdose of opioids surpassed 1,00,000, with 67 per cent of those deaths involving fentanyl. But Trump wanted to slap tariffs for other reasons as well, such as the US’s large trade deficit vis-à-vis the rest of the world and the loss of manufacturing industry inside the US. For its part, China started retaliating with counter-tariffs of its own. This process escalated quickly after Trump’s announcement of reciprocal tariffs on April 2. By April 10, the situation had worsened to a point where the US had imposed 145 per cent tariffs on China and China had retaliated with 125 per cent tariffs on the US.

Effectively, these tariffs meant a trade embargo with terrible economic consequences not just for the two countries involved but also for global supply chains. Both the US and China were staring at a deep economic slowdown, leading to widespread job losses and erosion in business confidence. The US, in particular, was already on its way, according to many experts and investors, to a recession. The US GDP contracted by 0.3 per cent in the first quarter of 2025, without even the worst effects of high tariffs coming into play. For China, too, the costs of a stand-off were prohibitive given its economy’s over-reliance on exports. The pause announced on Monday pulls the two economies back from that brink. There was evidence that negotiators on both sides realised the high global economic costs of a trade war between the two with the joint statement starting with the following words: “Recognising the importance of their bilateral economic and trade relationship to both countries and the global economy…”

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While this is a welcome pause, it is important to note that this is not yet a trade deal. What the US and China have managed over the weekend is to undo the escalation that happened since April 2. Both countries cut their respective tariffs by 115 per cent. That means now both countries have 10 per cent tariffs on imports from each other; the US has an additional 20 per cent, which was connected to the fentanyl issue and predated the “Liberation Day” tariffs on April 2. This means US consumers will continue to face a steep 30 per cent tariff while the two countries negotiate an actual deal. Clearly, a lot of economic damage has been avoided, but this situation is still precariously balanced with significant costs to consumers and producers on a daily basis.