The Joint Statement on US-China Economic and Trade Meeting in Geneva published on 12 May appears to be a significant de-escalation of the trade war between the two countries, Fitch Ratings says. But in the absence of a lasting deal, uncertainty over where tariff rates will settle and the impact of those already implemented will remain key factors in our macroeconomic forecasts.
The statement suspends for 90 days the 34% reciprocal rate that the US imposed on Chinese imports on 2 April and cancels the subsequent escalation in the reciprocal rate to 125% that it announced on 8-9 April. The US and Chinese governments will reduce overall headline bilateral tariffs (unadjusted for sector-specific tariffs and carve-outs) by 115pp. This lowers headline US tariffs imposed this year on Chinese imports to 30% (comprising the 10% reciprocal rate and the 20% fentanyl-related tariffs) and Chinese duties on US imports to 10%. They will also “establish a mechanism to continue discussions about economic and trade relations.”
The announcement suggests a willingness to avoid a sustained collapse of US-China trade flows that would severely disrupt the world’s two largest economies. Lowering the 34% reciprocal tariff rate to 10% echoes the US’s approach taken for many trade partners in President Donald Trump’s 9 April Executive Order. Even more strikingly, it also undoes the sharp escalation that had raised US-China bilateral tariff rates to triple digits.
Fitch cut its 2025 global GDP forecast to 1.9% last month following April’s tariff escalation and prospects of a concomitantly dramatic hit to US-Chinese trade flows. Monday’s agreement reduces the US effective tariff rate (ETR) from about 23% to about 13%. While this would imply a smaller hit to global growth, all else equal, it would still be far higher than the 2.3% US ETR in 2024, with a near-universal 10% tariff and some higher sector-specific tariffs still in place.
Nor does the US-China agreement mean the trade war, which is already having a tangible economic impact, is over. US Treasury Secretary Scott Bessent said that the agreement continued a process of “economic decoupling for strategic necessities” whereby the US would lessen its dependence on Chinese imports, but that “generalized decoupling” was not US policy. The US ETR for China remains the highest of any trade partner at an estimated 31.8%, according to Fitch’s U.S. Effective Tariff Rate Monitor. This reflects duties imposed by the US prior to 2 April, including on autos and steel, plus a 10% baseline tariff imposed on most countries. It also incorporates the 13 April exclusion of smartphones, computers and some other electronics.
While this is down from 103.6% before 12 May, the Trump administration appears to be using tariffs to pursue an import substitution agenda aimed at boosting US manufacturing and reducing the trade deficit, making further disruption to trade flows and supply chains likely.
A surge in imports in anticipation of higher tariffs contributed to a 0.3% annualised contraction in US GDP in 1Q25. Trade and related data are likely to remain volatile in the coming quarters as these effects play out. US private-sector demand remained fairly robust, but uncertainty over the outcome of US-China talks and other bilateral trade negotiations will continue to act as a brake on investment in multiple sectors and jurisdictions.
Fitch will assess these factors when it updates its global macroeconomic forecasts in its upcoming June 2025 Global Economic Outlook. US trade policy has been highly volatile in recent months but if the latest de-escalation holds, there would be upside potential relative to our global growth forecasts published in our Global Economic Outlook - April 2025 Update.
