The agreement between the United States and China to reduce mutual tariffs and declare a 90-day truce does not mean that the trade war, which has impacted various markets, is over, Fitch Ratings believes .
The joint statement on the Economic and Trade Meeting between the two countries in Geneva, Switzerland, which was released on May 12, appears to be merely a significant de-escalation of the trade war between the two nations , the rating agency estimated.
“However, in the absence of a lasting agreement, uncertainty about where tariff rates will be set and the impact of those already in place will remain key factors in our macroeconomic forecasts,” he stressed.
This announcement suggests a desire to avoid a sustained collapse in trade flows between the United States and China, which would severely affect the world’s two largest economies.
“The reduction in the reciprocal tariff rate from 34% to 10% echoes the approach taken by the United States for many trading partners in President Donald Trump’s Executive Order of April 9. Even more striking, it also undoes the sharp escalation that had pushed bilateral tariff rates between the United States and China into triple digits,” Fitch explained.
The agreement reduces the United States’ effective tariff rate (ETR) from approximately 23 percent to 13 percent .
“While this would imply a minor impact on global growth, all else being equal, it would still be much higher than our northern neighbor’s 2.3% ETR in 2024, with a nearly universal 10% tariff and some higher sectoral tariffs,” he explained.
It’s worth noting that Fitch Ratings lowered its global GDP forecast for 2025 to 1.9% following the April tariff escalation and the outlook for trade flows between the United States and China.
Despite the tariff relief from the announcement, the US ETR for China remains the highest of any trading partner, at an estimated 31.8% , according to Fitch’s US Effective Tariff Rate Monitor .
“The administration of US President Donald Trump appears to be using tariffs to pursue an import substitution agenda aimed at boosting US manufacturing and reducing the trade deficit, making further disruptions to trade flows and supply chains likely,” the rating agency noted.
Fitch Ratings believes trade and related data are likely to remain volatile in the coming quarters as these effects unfold, noting that negotiations will continue to act as a drag on investment across various sectors.
On May 12, the United States and China reached an agreement to reduce their tariffs and declare a 90-day truce , which went into effect on Wednesday, May 14 .
With this agreement, the northern neighbor will reduce tariffs on Chinese products from 145% to 30% , including those related to combating fentanyl trafficking. For its part, China will reduce tariffs on US products from 125% to 10% .
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