President Donald Trump's agreement with China to temporarily reduce tariffs for 90 days has offered the world some comfort. What remains, however, is a sense of uncertainty and the possibility that some damage from the trade war has already been done.
The Trump administration agreed after talks this weekend in Switzerland to reduce 145% tariffs imposed on imports from China to 30%. The Chinese government has decided to reduce the retaliatory tariffs on US goods from 125% to 10%, while the parties continue to negotiate.
Trump announced the de-escalation of the trade war for the win, stating that he will soon talk with Chinese President Xi Jinping about this and how to preserve financial relations between the two largest economies in the world.
Nevertheless, tariffs have already risen since Trump took office and the White House's mix of threats and olive branches in response could leave CEOs, investors, and consumers uneasy and risk-averse.
Trump will continue to impose tariffs
The global economy will not be back on track until January 19, 2025, the day before Donald Trump becomes president. Even as he routinely changes tariffs, the US president and his aides have made it clear that most imports will be taxed at a minimum of around 10%.
The 10% figure is Trump's baseline. He gave most of the parties a 90-day negotiation period after the tariffs were introduced on April 2nd, "Liberation Day", causing panic in financial markets.
He kept the 10% rate as part of the framework with the United Kingdom, announced last week. And Trump's new 30% tariff on Chinese goods includes a 20% tariff on China's fentanyl imports and a 10% base tariff applied elsewhere.
"We have a lot of deals that are coming together, but we always have a 10% base tariff", the US president said on Twitter.
Trump also hinted that he could yes there are exceptions. Sectoral tariffs of 25% on cars, steel and aluminum are all still in effect, as Trump has hinted that pharmaceuticals will also face import duties.
Last week, the US president said he had told House Speaker Mike Johnson and Senate Majority Leader John Tynan to include revenue of tariffs, when they figure out how to pay for the planned tax cuts.
Reality may now confirm the negotiations
Taice Zhang, a law professor who teaches comparative law and economic history at Yale University, said the chaos of the past month was probably not accidental. Both sides have tested each other's strengths, with Trump emphasizing the importance that foreign companies place on access to American consumers, and China emphasizing its resilience to external shocks.
"Until February, both sides likely had unrealistic assumptions about the economic or political weaknesses or intentions of "other," Zhang said.
"The Americans may have had an exaggerated sense of their own power in the negotiations early on, and the Chinese may have had an exaggerated sense of security from American economic pressure."
"The next best thing that could come out of this deal seems to be "There's a strong sense of reality on both sides," said Zhang. In this regard, Zhang said, it seems that the goals of both sides coincide, with China consuming more and the United States producing more.
The stock market is watching the news and can influence what happens next.
The world saw that Trump was being careful not to get on the wrong side of the financial markets. When his initial announcement of higher tariffs on April 2 sparked a sell-off in stocks and a jump in interest rates on U.S. debt, he backed off, announcing a 90-day tariff freeze so that talks could continue with countries other than China.
The S&P 500 stock index rose 3.3% in trading on Monday, helping to confirm the Trump administration's decision to reduce tariffs so that negotiations can continue.
Beware of the "bullwhip" effect
If Trump's 145% tariffs lead to fewer ships sailing for the Americans ports, the prospect of a slightly lower tariff rate could lead to a surge in containers being shipped across the ocean from China.
The possibility of fewer ships from China has increased the risk of empty oil tankers in American warehouses, a phenomenon most recently seen during the COVID-19 pandemic, which has led to a sharp price hikes and voter disenchantment.
With the rapid shift to lower tariffs, goods sitting in warehouses and factories in Asia can now be quickly loaded onto cargo ships, leading to a sharp increase in the cost of transporting these goods and creating bottlenecks in the prisons.
"Absolutely" There will be a bullwhip effect, where the current shortage will turn into an influx of new shipments, as companies try to anticipate the return of higher tariffs, said Michael Starr, vice president of growth at logistics company Zensargo.
"Then they can start shipping for the holiday season," Starr said. "They will ship as many orders as possible in those 90 days. And yes, the ships can't be put back into service as quickly as they are loaded."
There is almost no certainty about this happening right now.