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Home Posts The U.S.–China Agreement: Everything You Need to Know

The U.S.–China Agreement: Everything You Need to Know
Tomer Fadlon
15 May, 2025

On Monday, the United States and China signed a temporary 90-day agreement, freezing the astronomical tariff rates on imported goods between the two countries. This follows months of escalating tensions between the world’s two largest economies.

US tariffs on global imports have steadily risen since Donald Trump returned to the White House. Once again, China has taken centre stage in this round of the trade war, as the world’s largest exporter and the country with which the U.S. has its largest trade deficit—around $300 billion. However, the escalation this time was so sharp that tariff rates exceeded 100% on both sides. Time and again, the U.S. raised tariffs on Chinese goods, and China responded in kind, until by early April tariffs had reached 145% on Chinese goods and 125% on American goods. The escalation was fast and severe, driven by China’s alternative approach: Unlike most countries that sought to persuade the American president diplomatically, China retaliated with its own tariffs—apparently catching the White House off guard. It’s therefore not surprising that within just 48 hours of arriving in Geneva, both sides agreed to reduce mutual tariffs and freeze the trade war for 90 days.

Under the temporary agreement, US tariffs on Chinese goods are lowered to the global tariff rate introduced by Trump on “Liberation Day,” April 2 (10%). China, in turn, has agreed to reduce its tariffs on American goods to 10% as well. However, in practice, the effective U.S. tariff on Chinese goods stands at 30%—that includes the 10% global rate plus an additional 20% penalty Trump imposed early in his term for China’s role in the fentanyl crisis sweeping the U.S. In addition, the U.S. reduced the tariff rate on small packages from 120% to 54%. Notably, on May 2, a new law took effect that repealed the tax exemption on small imports under $800. This sector is dominated by Chinese platforms like Temu and Shein, which export around $30 billion worth of goods annually to American consumers.
The understanding reached between the parties sparked sharp rises in global markets and brought relief to U.S. retailers. About two-thirds of the merchandise sold by major American retailers like Walmart and Amazon is imported from China. According to multiple reports, the declining inventories at these retailers—unprepared for the 145% tariffs—were a major factor accelerating the Geneva negotiations.
However, it’s important to note that this agreement does not yet mark a normalization of trade relations between the two powers. First, if no further agreement is reached, once the 90 days expire, tariffs are set to return to 34% on U.S. imports and 54% on Chinese imports. Second, even after this temporary deal with China and a separate permanent deal with the UK, the U.S.’s average tariff on goods from all countries stands at 17.8%—its highest since 1934. These tariffs are expected to have a negative impact on global growth.

Therefore, this temporary deal should be viewed with caution. It may offer only a brief period of relief—intended to give businesses on both sides time to better prepare for the next round in the trade war.

Topics: Israel-China Policy Center - The Diane and Guilford Glazer Foundation
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