Tariff Truce, Not Peace

The world’s two largest economies have agreed to stop shooting—for now. At the close of a tense weekend of negotiations in Geneva, American and Chinese officials announced a major de-escalation in their long-running trade war. The United States will slash punitive tariffs on Chinese imports from around 145 percent to 30 percent, while China will lower duties on American goods from 125 percent to 10 percent and “suspend or cancel” an array of informal trade restrictions. The ceasefire, due to last 90 days, has been met with relief in boardrooms and financial markets alike.

The near-term economic effects are likely to be positive. Smaller tariff burdens should alleviate distortions in supply chains, easing price pressures on intermediate inputs and consumer goods. Businesses could feel more comfortable maintaining hiring and investment plans, potentially reducing the risk of an outright decline in growth and employment. Consumer sentiment levels might stabilise, supporting spending levels. Markets have already responded with a rally in risk assets and the dollar itself.

Yet while the announcement may buoy spirits and temporarily unclog shipping lanes, it offers more in optics than substance. When calculated on an import-weighted basis, US tariffs remain at levels last reached during the Great Depression, meaning that global trade is still functioning with the equivalent of sand in its gears. Policy uncertainty continues to exert a chilling effect on business confidence, and multinationals have little incentive to re-anchor supply chains or restart shelved investment projects when another escalation could be one tweet—or one speech—away. In currency markets, exchange rates could reverse direction and drive volatility higher as the 90-day clock ticks down.

The world should welcome the pause. But it must not mistake a truce for a treaty. Until tariffs fall meaningfully—and predictability returns—this ceasefire is just another staging post in a protracted conflict.