(Washington Comprehensive News) China and the United States agreed to reduce tariffs on each other for 90 days, which significantly reduced the trade tensions between the two countries. However, the current US tariff level is still high, and it is unclear whether China and the United States can finally reach an agreement. Tariff uncertainty is expected to continue to impact the US economy.
China and the United States issued a joint statement on Monday (May 12), the United States will reduce tariffs on China from 145% to 30%, and China will reduce tariffs on the United States from 125% to 10%. US President Trump also said that he might have a phone call with Chinese President Xi Jinping later this week. The White House later announced that the tariff on small packages below US$800 (about S$1,040) sent from China will be reduced from 120% to 54% starting Wednesday (May 14), but a fixed tariff of US$100 will continue to be levied.
The temporary truce in the Sino-US tariff war encouraged investors. US stocks rebounded sharply overnight on Monday, and Asia-Pacific stocks generally rose on Tuesday.
However, Adriana Kugler, a member of the Federal Reserve Board, pointed out that although the Sino-US trade situation has improved, tariffs are still at a high level and continue to put pressure on the economy.
Kugler said in a speech at a conference in Ireland after the joint statement issued by China and the United States: "I still expect consumer prices to rise and the economy to slow down, but it will not be as severe as before."
Ross Mayfield, a strategist at Baird Private Wealth Management, also said: "The market has reason to be optimistic, but even if the trade relationship between the two countries has cooled significantly, there are still many headwinds, and the overall tariff level in the United States is still much higher than at any time in the past 75 years.
According to UBS's estimates, a 90-day ceasefire in Sino-US tariffs will reduce the average tariff rate in the United States from 24% to 15%.
Jane Foley, head of foreign exchange strategy at Rabobank, said: "It is still quite uncertain at what level the tariffs will eventually fall and what impact they will have on world economic growth and central bank policies."
Mansoor, chief economist at Bank of Singapore Mohi-uddin published a new report predicting that the risk of the US economy falling into recession due to severe supply-side shocks has been reduced, but it will still fall into stagflation this year, that is, economic stagnation and rising inflation.
Momansu said that the United States continues to impose a 30% tariff on Chinese goods, which is equivalent to making American consumers pay an additional $400 billion in taxes, which is equivalent to 1.5% of the domestic economic output. At the same time, the core inflation in the United States is estimated to rise to 3% to 4%.
Analysis: Good news for China's economic compliance
As for China, Momansu maintained its full-year economic growth slowed from 5% last year to 4.2%. , but it may be revised upward next.
ING Group believes that the US tariff reduction on China will help the Chinese government achieve its full-year growth target of about 5%. It raised its full-year growth forecast for China to 4.7% and expected China's exports to the US to rebound sharply in May and June.
Dong Yan, director of the International Trade Research Office of the Chinese Academy of Social Sciences, believes that the 90-day tariff suspension period reached between China and the United States is a good progress, but at the same time warned that Trump may still raise tariffs again.
She said: "The lesson we learned from Trump 1.0 is that tariff negotiations may be a process of repeated tug-of-war, rather than a result that can be achieved overnight."
Xing Ziqiang, chief China economist at Morgan Stanley, said that the window period of tariff suspension may prompt companies to speed up production and shipments. He also warned: "Given the complex bilateral relationship, it is still challenging to reach a lasting agreement."
