The United States and China—two of the most powerful global economic giants who are also fierce trade competitors—have agreed to suspend most of their punitive tariffs for a 90-day period. This move has undoubtedly come as a respite and signals a spec of thaw in an otherwise frigid economic confrontation. Markets have understandably responded with optimism, registering significant gains across stock indices worldwide.
Economic logic of the hyper-connected world would reveal that the scale of tariffs imposed by both the countries on each other were unsustainable. By early May, the United States had levied a staggering 145 per cent tariff on Chinese goods, while China retaliated with tariffs up to 125 per cent on American imports. The rationale working behind such a mindless trade war was always questionable. In the US, manufacturers dependent on Chinese components had begun to hurt. Likewise, in China, export-driven industries started to falter. The Geneva talks, thus, marked a diplomatic breakthrough. But more importantly, it was a manifestation of forced recalibration in the face of shared economic pain. President Trump, notorious for his pugnacious trade rhetoric, now appears to have realised the limits of economic brinkmanship. The dominant theory circulating in geopolitical corridors is that the US had to backtrack from its mindless economic policy of reciprocal tariffs. In this highly globalised world, any nation—however ‘great’ it was or however ‘great’ it aims to become—cannot stand in outright isolation with the false presumption of self-sufficiency. China, all along since the imposition of exorbitant trade tariffs, had been firm in its stand—forcing the US to initiate the negotiations by backtracking from its position. No matter whatever narrative the US paints to project a balanced equation from here, it has certainly tasted the bitter complexities of the global system that drives economic decisions. Trump, by now, must have a clear idea that “sustainable, long-term, and mutually beneficial economic and trade relationship” between the US and China is non-negotiable. Same applies for other major trading partners.
As things stand today, the broader tariff regime has been drastically trimmed—down to 30 per cent on Chinese goods from the earlier 145 per cent, and to 10 per cent on American goods entering China. These reductions, as we know, are time-bound. In the detailed negotiations that will follow, China, which also desperately wanted the slashing of reciprocal tariffs, may have a greater leverage and a maximalist negotiating position at hand. Nevertheless, the agreement's framing as a ‘reset’ in bilateral relations should not be mistaken for a pivot. Analysts rightly describe this as a ‘tactical pause’, and not a strategic reorientation. Structural frictions—ranging from intellectual property disputes to concerns about espionage, technological theft, and an ever-widening US trade deficit with China—remain unresolved. In 2024, the US trade deficit with China stood at a whopping USD 295.4 billion. Moreover, the systemic distrust that characterises Washington’s view of Beijing’s economic rise has only deepened over the years. With China’s Vice Premier He Lifeng and US Treasury Secretary Scott Bessent leading negotiations, there is now a structure—however fragile—for sustained communication. This alone sets the current pause apart from earlier episodic agreements.
For the world, particularly for developing economies like India, this temporary easing brings both relief and concern. On the one hand, a less confrontational US-China trade environment could stabilise global markets and calm inflationary pressures. On the other hand, if China regains its appeal to global investors as a reliable manufacturing base, the much-touted ‘China+1’ strategy—which India has struggled to capitalise on—could lose momentum. Additionally, India’s own trade dynamics with both powers remain uneasy. With China, in particular, the trade deficit is widening, and Indian industry remains heavily reliant on Chinese imports across critical sectors. In essence, while the 90-day suspension is a welcome pause, it is also a reminder of the fragility of global trade politics in an era of rising nationalism and economic populism. Both Washington and Beijing must now decide whether they are willing to move from tactical manoeuvring to long-term economic reconciliation.