Trade Alert: U.S. and China Agree to Trade Truce
The United States has reached an agreement for a trade truce with China. President Donald Trump announced the agreement via social media, noting that it is subject to his and Chinese President Xi’s final approval. The agreement effectively restores the May agreement in which the United States reduced tariffs to 30% while retaining earlier tariffs, while China will reduce its tariffs to 10%. The United States had accused China of breaking that agreement.
Trump stated that China will supply upfront “full magnets, and any necessary rare earths,” Trump said. The United States will, in turn, allow Chinese students to attend U.S. colleges and universities. U.S. tariffs on imports of Chinese goods will be set at 55% and Chinese tariffs on imports of U.S. goods will be set at 10%.
Tariff rates
U.S. 55% tariffs: The U.S. tariff of 55% is composed of the 20% fentanyl tariffs, the 10% IEEPA reciprocal tariffs, and the 25% Section 301 tariffs from Trump’s first term.
Chinese 10% tariffs: The 10% tariffs restores the tariff rate that China agreed to in May.
Rare earth minerals and magnets
While Trump did not mention export controls on microchips in his announcement, U.S. officials stated that the administration may ease restrictions on the export of certain microchips if China complies with the agreement on critical minerals licenses for U.S. companies. The administration, however, would continue to restrict “very, very high-end Nvidia” chips used for AI. If China does not comply, the United States could impose additional controls that target critical industries or companies. An easing of microchip restrictions on China would reverse the Biden administration’s policy to prevent China’s access to U.S. technology that could have military application.
China restricted exports of rare earth minerals and magnets to the United States in April. After accusing China of violating the May agreement, U.S. official began to impose export restrictions on semiconductor design software, jet engine parts, chemicals, nuclear materials; they also began revoking visas for Chinese students.
Finalization
There are likely some disagreements still to be resolved, as the leaders of both sides must still sign off on the agreement. Given this uncertainty, there is still the risk that the tentative truce does not result in an official agreement.