US & China to Temporarily Slash Tariffs

Context

The US and China agreed to suspend most tariffs on each other’s goods.

Why were Tariffs Levied?

• Trade Imbalance: The U.S. Trade Representative pointed to a $1.2 trillion trade deficit with the relaxation of the arena as justification for price lists.
  • The Trump management considered this because the U.S. Being “ripped off” through trading companions who blanketed and backed their own industries even as benefiting from open U.S. Markets.
• Strategic Protectionism: The management believed that speaking had not helped trade international trade behavior, so high tariffs had been seen as a tool to pressure other countries to open their markets.

Revised Tariffs After Geneva Talks

• Both have reached an agreement on a 90-day pause and appreciably move down the tariff levels. 
• The deal means “reciprocal” price lists among both nations can be reduced from 125% to 10%. 
• The U.S.′ 20% obligations on Chinese imports regarding fentanyl will stay in vicinity, which means overall tariffs on China stand at 30%.

Why Was There a Truce?

• China’s Retaliation: Unlike different countries, China spoke back with its personal counter-price lists and non-tariff limitations escalating the trade war.
• Economic Concerns inside the U.S.: At peak ranges (U.S.: 145%, China: 125%), price lists have become prohibitively steeply-priced for customers and businesses.
  • Example: A $100 Chinese product was $245 in the U.S.
  • The U.S. Economy commenced contracting in Q1 2025 — even before the overall effect of the price lists had hit.
  • Economists expected a recession and probably stagflation (an unprecedented blend of economic stagnation and inflation).
• Consumer Pressure: U.S. Clients faced rising charges and shrinking product availability, mainly at essential retailers like Walmart.
  • Public and political pressure established as economic conditions worsened.
• China’s Economic Resilience: While China’s exports to the U.S. Dropped 21%, its regular exports rose 8%, and GDP grew 5.4% in the same region.
  • China’s global trade surplus improved, indicating that it had managed to diversify and offset the U.S. losses.

Way Ahead

• The modern agreement is a truce, not a complete trade deal.
• Market reactions were high-quality — stocks and the greenback rose, whilst gold and bonds fell, indicating decreased risk notion.
• However, the talks that comply with might be complex, and no guarantees exist for a complete trade deal.

Source: The Indian Express

UPSC Mains Practice Question

Q. “China is using its economic relations and positive trade surplus as tools to develop potential military power status in Asia”. In the light of this statement, discuss its impact on India as her neighbour. (2017)

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