Trade War Truce: China and USA Strike Preliminary Deal
U.S. and China reach tentative deal in trade conflict - U.S. and China strike tentative trade disagreement settlement
In a significant breakthrough, China and the USA have reached an interim agreement in their ongoing trade talks. Key figures from both sides have confirmed a framework to implement the consensus reached by the leaders of both nations and documented in the Geneva meeting in May [1].
China's chief trade negotiator, Li Chenggang, has stated that this agreement sets the groundwork for the negotiating teams to present their results in London for approval by their respective presidents [2]. Similarly, US Trade Minister Howard Lutnick also reported a framework agreement to implement the Geneva consensus [3].
The Future Belongs to Approvals
The agreement will only become official once it has received the go-ahead from the heads of state of both countries, according to reports [4]. Further details on the contents of the agreement remain undisclosed at present.
Li hailed the two-day talks in London as "professional", "honest", and "reasonable", expressing hopes that the progress made will strengthen the trust between China and the USA [2].
Escalation Averted?
This interim agreement marks a step towards easing tensions in the heated trade war between the world’s two largest economies. The current 90-day truce is still enforced, with both nations agreeing on significant reductions in tariffs on imports as part of the Geneva accord [4].
However, this latest meeting focused on export restrictions, particularly the export of rare earth minerals, which China has controlled since April, requiring complex application processes for export licenses [4]. In addition, the USA has imposed restrictions on the sale of critical chip design software and aircraft components to China [4].
As for the next round of negotiations, details are unclear. However, the recently set deadline of August 14, 2025, to avoid potential tariff increases serves as an incentive for both parties to continue discussions and pursue further tariff reductions [2].
Key Components of the Agreement:
- Tariffs: The interim agreement lowers baseline tariffs for China-origin goods from the initial 55% announced by President Trump to a baseline of 30%, consisting of a 20% tariff related to fentanyl trafficking and a 10% reciprocal tariff. The 10% reciprocal tariff is subject to a potential increase to 34%, bringing the total baseline tariff to 54%, if no agreement is reached by August 14, 2025 [1].
- Export Restrictions and Exclusions: The agreement includes exceptions for certain products such as semiconductor devices, critical minerals, and Section 232 tariff-impacted steel and aluminum products and derivatives, as well as automobiles and auto parts [1].
- Rare Earth Minerals: The deal seeks to re-establish the flow of rare earth minerals from China, easing concerns over supply chain disruptions [1].
- Educational Exchanges: In return, the USA will reportedly lift restrictions on Chinese students attending American universities [1].
- The community policy of both the USA and China should address the implications of the agreed trade policy on employment within their respective businesses and industries, particularly considering the impact of reduced tariffs on imports as stated in the interim agreement.
- In the context of ongoing trade negotiations, the financial sector should closely monitor the political landscape, especially any changes in employment policy or business regulations, as they could potentially affect the flow of financial resources between the USA and China.
