12 May 2025
If you are covering the news of an agreement between the US and China to reduce tariffs, please find below a comment from Lindsay James, investment strategist at Quilter:
“Following positive noises over the weekend, the US and China have agreed to step back from the brink and reduce tariffs to far less punitive levels. The US has agreed to reduce tariffs on China from 145% to 30%, whilst China has cut tariffs on the US even further, from 125% to 10%, both for a 90-day period giving both sides time to negotiate further.
“This news is undoubtedly better than investors had hoped; in the run up to these talks President Trump signalled that a tariff rate of 80% “feels about right” whilst there had been other reports that 60% might be the more likely floor. The reality is better; not quite as good as the 20% level that existed before so-called Liberation Day, and with no detail on the current trade restrictions China has placed on rare earth metals, but a significant step towards de-escalation that will likely see a considerable proportion of trade resume, albeit at slightly higher prices.
“Markets have widely welcomed this news, with US equity futures gaining ground whilst Chinese markets extended their rally. The dollar looks set to have a strong day, whilst gold, having gained around 40% in the past year, is on the retreat as the demand for safe havens is likely to be more muted.
“This news is good given where we were, but there is still a lingering question over whether sustained progress is likely. We have seen tariffs suspended only to be reintroduced after subsequent negotiations weren’t seen to be progressing adequately, and early trade deals have been announced with fanfare only to be later ripped up. Furthermore, with this deal in place for just 90 days, lack of any concrete progress will likely just ramp up market tensions once again.
“Whilst companies will no doubt take advantage of this semi hiatus in order to replenish stock, uncertainty lingers and tariffs still remain considerably higher than at the start of this year, with an effective average tariff for the US of around 10%; down from 20% before today but considerably higher than the c.2.6% rate enjoyed earlier this year. Attention will now shift in the short term at least to announcements on the pharmaceutical sector, as Donald Trump promises to lower US drug prices by up to 80%.
“Investors will be pleased to see negotiations seemingly making progress, however, a degree of cynicism is likely to remain given Trump’s previous form, and the fact the deadline for ‘reciprocal tariffs’ on many other countries remains firmly in place, for now.”
