A reprieve, of sorts, in ongoing global trade tension, came over the weekend, with the United States and China coming to terms on a temporary agreement, while meeting in Geneva, Switzerland.
Under the terms of the agreement, the U.S. and China said in a joint statement that, effective May 14, U.S. tariffs on Chinese imports will drop from 145% to 30%, while China will cut its own tariffs on American goods from 125% to 10%. And President Trump’s 20% fentanyl-related tariff will stay in place, but most of the broader trade war measures will be temporarily relaxed. These changes will remain intact for 90 days, through August 12.
Heading into the meetings, the U.S. had 145% tariffs on goods manufactured in China headed to the United States, while China had 125% tariffs on goods manufactured in the U.S. headed to China. These very high tariff levels were the result of retaliatory back-and-forth actions between the countries on various fronts, which had seen tariffs rise significantly since President Trump re-entered the White House in January. Drivers for the tariff measures previously cited by the White House include addressing U.S. trade imbalances, pushing for increased domestic manufacturing, and stemming the flow of fentanyl.
What’s more, since the respective 145% tariffs on Chinese goods and the 125% tariffs on U.S. goods had been in place, going back to April, the subsequent economic impacts have been apparent, with first quarter U.S. GDP falling to 0.3%, for its first decline, going back to the early days of the pandemic in 2020, and paced by a flurry of U.S.-bound import activity in advance of the expiration of the U.S. 90-day reciprocal tariff pause, set to expire on July 9. As for China, it has seen declining factory activity, coupled with a sharp decline in its exports shipped to the U.S.
As previously reported, the ongoing shifts in tariff levels and related announcements has collectively brought about a lingering sense of uncertainty, and by extension, confusion, for global supply chain stakeholders, with the expectation that until there is more clarity, import levels are expected to decline, leading to many unanswered questions as well.
While the elevated U.S. and China tariffs had essentially brought trade between the two nations to a standstill, Port of Los Angeles Executive Director Gene Seroka had recently said that tariffs at that level would more than likely increase costs for anything bought from China by two-and-a-half times. He also noted that decisions on orders and factory selections take months, and once a ship leaves its origin in Asia, it takes another couple of weeks before the cargo arrives in the U.S.
And Paul Bingham, Director, Transportation Consulting, for S&P Global Market Intelligence, said that prior to the 90-day U.S.-China pause being reached, that things like blank sailings, capacity issues, and the sharp drop-offs in order shipping as the last arrivals of vessels from the pre-China tariff escalation arrive, could lead to what he called a cliff.
“Once we hit that cliff, it is very likely, if things don’t change, we are going to see what we are already seeing with China-U.S. trade, with dramatic drop-offs in shipping volumes, and port activity will nosedive,” he said. “There are commodities moving that have inelastic demand, for which importers will have to pay extreme tariffs to acquire them. With all of the downstream impacts of that it’s not just finished goods for retail sales—the substantial proportion of trade which feeds U.S. manufacturing—is also suffering. It’s going to hammer the economy in ways, both directly and indirectly, and it already is.”
Morgan Stanley analyst Ravi Shanker wrote in a research note that this 90-day pause provides shippers with a window to build inventory and buy themselves time until January 2026.
“Given the uncertainty beyond the current 90-day window, we believe shippers will also take advantage of timing to place holiday-season orders for early(ish) delivery,” wrote Shanker. “That would buy them time until Jan 2026 at least, for a more permanent and sustainable tariff resolution. This could set up a 90-day period of heightened freight activity over the summer, in our view. With potential supply tightness in trucking (especially if the English-proficiency rule for truck drivers is enforced) and some service issues already emerging, any supply side shocks could trigger potentially a record (albeit potentially short) upcycle as well. If we get consumer balance sheet relief (lower interest rates, tax cuts) to go with a long-term tariff suspension, the upcycle might last longer than we think.”
Keith Prather, Armada Corporate Intelligence Managing Director, agreed with Shanker, in observing that there will be a percentage of shippers that will try to get orders quickly placed to arrive in the U.S. by August 12.
From a modal perspective, he explained that air cargo should see a significant benefit, but anything else that is ready-to-ship (inventory ready to ship) should find its way on ships quickly and get inbound. To that end, he noted that any goods that have little perishability or obsolescence risk could likely be ordered aggressively, and he added that tightening warehouse conditions over the 90-day pause could be a factor, depending on how aggressive retailers get.
“Manufacturing processes that stretch four-to-six weeks will likely get thrown on aircraft to get to the U.S. prior to the deadline,” he said. “Historical negotiations with China have been rocky, there are expectations that this one could follow the same path and getting within this 90-day window could be very important for some shippers.”
Based on this announcement and the recently-announced U.S.-United Kingdom trade deal, Prather observed that a 10% base tariff on U.S. trading partners is likely, adding that supply chain managers are likely working on total landed cost calculations to figure out the implications of it.
“Most currency exchange rates and mild savings across the supply chain can absorb a 10% rate fairly easily without much being passed along to the final consumer,” he said. “We ran models and found that in the nonresidential construction sector, a 10% base tariff had a net effective price impact of about 2.1%-2.3% on the cost of the average construction project (which is nominal and is easily passed on to the client or absorbed in other ways across the supply chain). Estimates of a base 10% tariff pushes U.S. GDP in 2025 to 1.8%-2.0% (back-half loaded) and nearly 3% in 2026.”
An analysis issued by global digital freight marketplace Freightos explained that while the 145% tariffs drove a drop of 35% or more in China-U.S. ocean volumes going back to early April, there is likely to be a significant near-term rebound as shippers replenish inventories that may have started to run down in the past month—coupled with many Chinese manufacturers having high levels of finished goods already ready to ship.
“And with an August deadline for the possible return of higher tariff levels, it is likely we’ll see frontloading restart, meaning an early start and probably an early tapering off of peak season-level volumes this year,” it said. “So, if demand does pick up sharply, shippers may face a period of tight capacity and some equipment shortages as vessels and containers are moved back into place. A big increase in demand would also mean a big bump in the number of vessels and container volumes arriving at U.S. ports in a few weeks. Taken together, shippers could face increased container rates and some congestion and delays in the next few weeks at both origins and U.S. destinations.”
The U.S.-China deal was welcomed by National Retail Federation (NRF) President and CEO Matthew Shay, with Shay noting that NRF applauds the nations for agreeing to the pause on the reciprocal and retaliatory tariffs.
“We are encouraged by these constructive negotiations, which provide for a significant de-escalation in the current trade relationship,” said Shay. “This temporary pause is a critical first step to provide some short-term relief for retailers and other businesses that are in the midst of ordering merchandise for the winter holiday season. And over the long term, this lays the foundation for substantial progress in achieving truly fair and balanced trade relationships with both China and our other trade partners around the world. We urge the administration and our Chinese trade partners to continue discussions to address the ongoing issues, work to remove the remaining national security tariffs, and provide long-term stability between the two largest global economies.”
