The US and China extended the tariff deadline for another 90 days, and after President Donald Trump announced the suspension, markets gathered to prevent the escalation of a trade war between the two biggest economies in the world.
As a result of the extension, the higher tariff levy on China will be suspended until November 10th, and all other elements of the existing armistice (scheduled to expire on Tuesday) will remain in place.
“The United States continues to debate with the PRC to address our economic relationship and the resulting lack of trade interactions in domestic and economic security concerns,” Trump’s executive order said using the acronym for the People’s Republic of China.
China’s Commerce Ministry issued a parallel suspension on extra tariffs early on Tuesday, with state media reporting that “measures to implement further important consensus reached by the two heads of state” will provide stability to the global economy.
So how important is the second extension of the tariff ceasefire and will the two countries sign a trade agreement to prevent a trade war?
What are the conditions for the suspension?
Beyond the extension of the date, the fact sheet posted by the White House on Monday did not detail changes to the trade ceasefire agreed in May. In a similar statement, China said it would also extend the 90-day tariff suspension.
On May 11, both sides agreed to a 90-day suspension of customs duties. From early April until then, the US had a tax on Chinese products at 145%, while China’s tariff on US exports was 125%.
However, the tariff ceasefire agreed in Geneva, Switzerland, reduced temperatures to 30% by temporarily reducing US tariffs on Chinese imports, and China’s tax on US exports fell to 10%.
Beijing has also agreed to resume rare earth exports, which are important for the US manufacturing sector, including electronics, aerospace and automobiles.
Following his speech in Geneva, representatives from the US and China met in London in June and then again last month in Stockholm, Sweden. After the Stockholm meeting, US negotiators returned to Washington on August 12 with a proposal that Trump would extend the Geneva deadline in the past.
In preparation for this latest suspension, Trump is understood to have urged China to quadruple US soybean purchases on Sunday, seeking additional concessions. However, analysts questioned the feasibility of his deal, and Trump did not repeat his request on Monday.
How did the stock market respond?
Financial markets gathered on Tuesday, with stocks in Japan and Australia reaching record highs following the announcement of a trade ceasefire. Japan’s Topix benchmark rose 1.6% as Australia’s S&P/ASX 200 rose 0.2%.
In the US, futures tracking the S&P 500 and NASDAQ indexes rose 0.1%. Meanwhile, crude oil prices have risen. Brent crude futures jumped 0.4% to $66.9 per barrel, while U.S. West Texas intermediate crude futures rose 0.4% to $64.2.
Why has Trump become more flexible with China through trade?
In recent weeks, US-China negotiations have been working in parallel with other discussions on August 7th in which Washington served as a trading partner, as well as “mutual” tariffs and industry-specific taxes.
Trump attacked agreements to reduce tariffs with some trading partners, including the EU and Japan, but hit others with taxation that shook them, such as Brazil and Switzerland. In India, Trump doubled the tariff to 50% after New Delhi refused to curb the purchase of Russian oil and lower tariffs on US goods.
For Thomas Sampson, professor of economics at the London School of Economics, trade negotiations between the US and China are “on its own trajectory… because the US sees it as a long-term economic rival.”
Sampson told Al Jazeera, “I don’t think that (Washington) sees the EU or other countries the same way.” He also said that “early military competition between the US and China” means that bilateral negotiations are sensitive.
What makes trade relations special?
Trump has consistently criticised Beijing for what he considers unfair trade practices: import allocations, tax credits and subsidies. He even argues that the US trade deficit with China, which reached $295.4 billion last year, amounts to a nationwide emergency.
China is the third largest trading partner in the United States, after Mexico and Canada. From washing machines and TV sets to clothing, we rely heavily on China for products manufactured.
The US Department of Commerce calculated that in 2022 46.4% of all US imports from China were achieved by mechanical appliances (mainly low to medium technology products).
And following his “liberation day” announcement in April, imports from China surged to beat Trump’s tariff bites, but they fell in June.
In fact, US trade deficits with China fell from about a third to $9.5 billion in June, according to data from the US Census Bureau.
The US trade gap with China fell by $22.2 billion between March and August. This is a 70% drop from a year ago.
More generally, US Treasury data shows that the US generated $124 billion from tariffs between January and July this year. This is 131% more than last year’s same time.
At the same time, both countries exchange key strategic interests with key strategic interests that surpass the crude deficit figures. And both sides have recently taken steps to reduce flash points.
The US has eased several export restrictions on advanced semiconductors, a key demand from China.
On Monday, the Financial Times newspaper revealed that Trump allowed NVIDIA and AMD to export advanced US chips to China. However, the tech giant will pay the federal government 15% of China’s sales.
Trump had previously banned those transactions. Trump’s predecessor, Joe Biden, also imposed restrictions on US chip exports and banned US high-tech investments in China.
On the other hand, Chinese exports of rare earth magnets have begun to recover in recent weeks since blocking sales to the US in April.
The flow of rare earth magnets used in everything from clean energy technology to military hardware increased from China to the US, from just 46 tonnes in May in June to 353 tonnes.
Still, total shipments were much lower than before Beijing began export control in early April.
Washington has also pressed Beijing to stop buying Russian oil and put pressure on Moscow on the war in Ukraine, and Trump has even threatened to impose secondary tariffs on China.
Vice President JD Vance said on Sunday that President Trump is considering imposing tariffs on Beijing.
“Obviously, China’s issues are a little more complicated as their relationship with China affects many other things that have nothing to do with the situation in Russia,” Vance told Fox News in an interview.
What happens next?
This week’s tariff suspension may clear the path for President Trump to meet President Xi Jinping in late October, when the president is expected to travel to South Korea for the Asia-Pacific Economic Cooperation Summit.
Until then, partial tariff moratoriums will give both sides time through years of trade concerns ahead of potential meetings.
In the US, economists widely agree that the impact of tariffs on Chinese goods is not entirely felt, as many companies are building stockpiles to reduce their higher obligations.
But going forward, BBVA research last month released an analysis that estimates US tariffs on China will boost US inflation and slow economic growth later this year.
For Thomas Sampson, “The suspension of tariffs will allow them (the US and China) to maintain the status quo, and it will not be surprising if they expand it further in 90 days.”
But more widely, he believes that “Washington has a bipartisan consensus to promote its removal from trade from China.”
“The big picture,” he said, “I think even under another president, you’ll still see tensions in relations between the US and China.”
