Cover Story: U.S.-China Call a Truce, But Global Trade Has Changed Forever

After 40 days of mounting trade tensions instigated by U.S. President Donald Trump’s policy of “reciprocal tariffs,” the U.S. and China agreed to a temporary ceasefire in their trade war on May 12, following negotiations in Geneva. This agreement marked a 90-day suspension of most punitive tariffs, with both sides committing to significant reductions: the U.S. dropped its peak tariffs on Chinese goods from 145% to 30%, and China reduced its tariffs on American imports from 125% to 10%, while also suspending non-tariff countermeasures such as export restrictions on rare-earth minerals and sanctions on U.S. firms [para. 1][para. 2][para. 3]. The truce offered some respite for global markets and cross-border supply chains, although uncertainty still looms regarding a comprehensive resolution [para. 4][para. 6][para. 7][para. 8].

Trump’s initial tariff measures, introduced after his second term began in January, aimed to protect U.S. industry, generate revenue, and lower trade deficits, particularly with China. Early actions in February included 10% tariffs on Chinese imports, prompting reciprocal Chinese tariffs ranging from 10% to 15% and further controls on exports of key metals. The standoff intensified in March with U.S. tariffs raised to 20%, then rapidly escalated in April when Trump’s “Liberation Day” raft of reciprocal tariffs targeted over 180 countries, driving effective tariff rates as high as 145% for imports from China. China responded in kind, and both sides kept ratcheting up tariffs until the Geneva breakthrough [para. 15][para. 16][para. 17][para. 18][para. 19].

Though the agreement eased some pressure, U.S. tariffs on Chinese goods remain at a historically elevated range (31%–44%), well above pre-2024 rates. Market reaction to the truce was positive; U.S. equities rebounded, but uncertainty persists due to the ongoing imposition of a 10% universal import tariff and higher selective rates, with allies like Japan, South Korea, and the EU growing less willing to accept Washington’s unilateral approach [para. 6][para. 7][para. 8]. Trump’s approval ratings have suffered domestically due to economic slowdowns and rising opposition to his trade policies, with the economy contracting 0.3% in the first quarter of 2025 [para. 9][para. 29].

Economists warn the underlying causes of the conflict—structural imbalances, persistent U.S. trade deficits, and shifting global supply chains—remain unresolved. The U.S. tariff rate on Chinese goods, while falling from a peak of 103.6% before May 12 to 31.8% after, is still the highest among U.S. trading partners. Analysts expect some of these elevated rates to be used as negotiation tactics, but the broader outlook is for higher inflation and slower growth: S&P forecasts core inflation in the U.S. will rise to around 3% in the second half of 2025, with real GDP growth slowing to 1.5%–1.9% in the next two years, compared to 2.8% previously [para. 11][para. 12][para. 35][para. 36][para. 37][para. 38].

Globally, this dispute has fundamentally shifted trade patterns, prompting countries to diversify supply routes and reduce reliance on U.S.-China flows. The temporary truce may be extended but will likely not resolve structural tensions. Experts agree that tariff policy may give way to broader fiscal and regulatory issues, and volatility in both trade and financial markets is expected to persist. The U.S. continues to press allies to limit Chinese content in exports, facing resistance, while retaliatory measures are prepared by entities such as the EU and India, underscoring lingering global uncertainties [para. 41][para. 43][para. 44][para. 45][para. 46][para. 47][para. 48][para. 50][para. 51][para. 53].