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As there is a fine line between love and hate, S&P, Nasdaq, Dow Jones, etc, need a dash of hope to move from panic to euphoria. This time, that hope came from encouraging news from Geneva: Beijing and Washington reached a temporary agreement in Geneva to reduce each other’s tariffs on their products.
Under the new agreement, U.S. tariffs on Chinese goods will be reduced from 145% to 30%, while China’s tariffs on U.S. goods will drop from 125% to 10%. This sounds promising until you remember that all pre-April second tariffs (including Trump-era measures) remain in place. This is not peace; it’s a pause.
No details have been released on the causes of this softening, but China may have agreed to buy more U.S. goods. It should be recalled that in January 2020, as part of a “first phase” trade agreement, China committed to buy $200 billion worth of U.S. goods and services over two years, a target it ultimately fell short of.
Alternatively, China may have agreed to appreciate the yuan against the dollar, something Donald Trump complained about, saying that China engages in currency wars to improve its exports. Neither has been confirmed, but even the DXY index rose as the ice between countries finally broke.
Looking ahead, according to Treasury Secretary Scott Bessent, more meetings with Chinese officials are planned in the coming weeks, and the next round could be aimed at a “broader and more comprehensive” agreement. Markets may rejoice, but seasoned observers should remain skeptical.
The problem is that even if trade agreements are reached with China, the EU, etc., Washington still plans to maintain a permanent 10% base tariff on all imports. This is not just a tax on foreign goods, but a slow burn on inflation and corporate profits, with consumers ultimately footing the bill.
In fact, some companies have admitted that their revenue forecasts do not yet account for the potential impact of the latest tariffs. In contrast, analysts argue that the economic damage has been done, warning that the current wave of optimism over tariff negotiations may not be sustainable in the long term.
