A Ceasefire in the Trade War
After a weekend of high-level negotiations in Geneva, the United States and China agreed to a dramatic temporary rollback of tariffs. Both sides will suspend the bulk of the duties imposed since April 2’s “Liberation Day,” reducing effective U.S. tariffs on Chinese goods from around 145 percent to 30 percent. China, in turn, drops its retaliatory levies to 10 percent, the same baseline Trump imposed on imports from other nations earlier this year.
The agreement—announced jointly in carefully coordinated statements—buys both sides 90 days to negotiate a broader resolution. But in the meantime, it delivers a meaningful reprieve for global markets. Stocks and the dollar surged, while Treasury yields rose on expectations that the Fed will now hold off on cutting rates. Markets have now priced out almost 10 basis points of easing, with a July rate cut looking increasingly unlikely.
According to Bank of America, the effective tariff rate on all imports has dropped from over 20 percent to about 12 percent. That could lower core PCE inflation by as much as 28 basis points and provide a modest lift to GDP, according to the bank’s calculations, helping Trump’s case that tariffs don’t necessarily have to be inflationary or recessionary. Still, the relief comes at a cost: about $300 billion in lost tariff revenue, or one percent of GDP, with no immediate offset.
Economic Nationalists Are Worried
Investors may be popping corks, but not everyone is celebrating. Critics across the political spectrum are warning that the deal amounts to a strategic retreat by the United States—one that gives up hard-won leverage in exchange for vague promises.
Alan Tonelson delivered a scathing rebuke on Monday, writing that “it looks like so far it’s the Trump administration that just blinked—and blinked hard.” While the administration retains a 30 percent average tariff, Tonelson argues that the U.S. has effectively rolled back to the pre-Liberation Day status quo, the very posture Trump said was intolerable.
“What did the Chinese give up in return?” Tonelson asks. “On the trade and tariffs front, for three months, the United States and China are back to where they were before Liberation Day.” And the danger, he adds, is not just economic: “Without enforcement, it’s all too likely that even the most comprehensive trade agreement reached with China will eventually amount to defeat being snatched from the jaws of victory.”
Tonelson points out that none of China’s non-tariff barriers—from value-added tax rebates to state-led industrial policy—are addressed in the deal. “Thirty percent tariffs can’t be counted on to achieve these aims,” he warns.
Wall Street Senses a Blink
It’s not just economic nationalists raising alarms. The Wall Street Journal called the rollback a bigger-than-expected U-turn, noting that “the U.S. hasn’t won concessions from Beijing yet.” Capital Economics’ Mark Williams argued that “China has successfully called Trump’s bluff.”
Bloomberg went even further, declaring the deal “arguably the best outcome that China could have hoped for.” The talks took place in Geneva, a neutral venue preferred by Beijing, and were led on the U.S. side not by Trump but by Treasury Secretary Scott Bessent, who is viewed by China officials as a preferable negotiating partner than some other members of the Trump administration.
It’s notable that Trump didn’t announce the deal on social media. As far as anyone knows, the U.S. president has not spoken with Xi Jinping. Trump instead posted about the revenue coming in from his tariffs and his plan to bring down prescription drug prices.
Strategic Pause, Not Capitulation
Those are hints that the China trade story is far from over. The White House insists this is only the beginning of a new chapter in trade talks—and far from a final settlement. The creation of a negotiating framework led by Bessent does not preclude tougher measures ahead. If anything, Bessent’s role as “good cop” could be part of a broader strategy that positions President Trump to resume tariff escalation later if Beijing fails to make meaningful concessions.
President Donald Trump gestures toward China’s President Xi Jinping, as First Lady Melania Trump and Xi’s wife Peng Liyuan look on, at the Great Hall of the People in Beijing on November 9, 2017. (JIM WATSON/AFP via Getty Images)
After all, Trump knows his legacy will hinge in large part on whether he succeeds in reshaping global trade rules in America’s favor. His first term cracked open the door; his second aims to rewrite the rules. A 90-day pause may buy time to build a stronger negotiating position—not just with Beijing, but with U.S. voters and businesses as well.
Crucially, the timing may prove politically potent. The tariff pause aligns with efforts to push forward new tax cuts, pro-growth deregulation, and energy abundance initiatives that could supercharge the U.S. economy in the coming quarters. A stronger domestic economy enhances Trump’s leverage in any future talks—and could bring more manufacturers and capital back to American soil regardless of what Beijing offers.
As Tonelson himself conceded, “No one can reasonably rule out a return to tough and smart China trade policies going forward.”
If this truce is followed by robust growth, a firm negotiating posture, and a readiness to reimpose tariffs if needed, today’s rollback may be remembered not as a retreat—but as a strategic pause.
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