Hitting Pause: US-China Trade Update from Trivium China

By Andrew Polk, Co-founder of Trivium China 

Originally published on April 12

Where we are: After multiple rounds of back-and-forth tariff increases, the US and China have each imposed 125% across-the-board tariffs on goods coming from the other county.

• The effective US tariff rate on Chinese goods now actually stands at 145% when you add in the 20% fentanyl-related tariffs that were imposed in February and March.
• And some US imports to China – particularly in the ag space – also appear to have another 10% to 15% tariffs imposed from the previous hikes implemented in the first three months of this year.

Not. Good. But still, this is unfortunately one of the better-case scenarios that we outlined in our podcast earlier this week.

At the very least, further tariff escalation seems to have been ruled out by both sides in the past few days, with US President Donald Trump saying he doesn’t expect to raise tariffs further on China.

• And for their part, during their latest retaliatory move on Friday, the Chinese side stated that “if the US continues to play the numbers game with tariffs, China will ignore it.”

The big worry among our clients over the past few days has been that the tariff escalation would spill over into the financial and technological realms – potentially seeing the US or China resort to even more disruptive actions such as:

• The US moving to de-list Chinese tech company shares trading on US exchanges
• Secondary sanctions on Chinese banks, potentially cutting them of from USD access
• A major widening of US export controls
• Wholesale dumping of US treasuries by Chinese financial entities
• Enhanced export controls on key critical minerals by China

Thankfully, none of that has happened. And as we’ve been counseling for the past week, we so far haven’t expected a significant widening of economic coercion beyond the tariff front.

• So while the above fears have been warranted to some degree, they’ve never been our base case – at least for this round of economic pugilism.

For its part, China has been very careful to craft retaliatory measures that do not seek to escalate things further.

• Although, as I wrote last week, those careful calculations have largely been lost on the Trump administration – as China seems to have misread how their responses are received in DC.

But despite that, both sides have found a way to hit the pause button on further escalation.

• So it seems, for now, that we are locked into an uncomfortable stalemate, whereby the two sides will seek to assess the damage, refrain from exacerbating it, and otherwise hunker down to see if a path to negotiations can unfold.

From here, I think it’s likely that the relative economic pain that both economies experience from the eye-wateringly-high tariffs will shape policymakers’ decision-making going forward.

• If the tariff fallout proves to be so devasting to China’s exports that macroeconomic growth tumbles, China’s leaders may feel compelled to pursue negotiations more proactively.
• That said, I continue to think the macro impacts will be manageable – and China can offset them with increased domestic stimulus.
• For Trump, if the inflationary impacts of tariffs on US consumers and businesses start to hit home – as seems inevitable – he may be increasingly likely to climb down.

The upshot: While the sky-high tariffs will have a negative impact on both the US and Chinese economies in the short term, the potential for a positive turn in US-China relations still exists.

If we’ve learned anything over the past week, it’s that policy dynamics can change quickly – and so extrapolating current dynamics far into the future doesn’t make sense.

Yes, US-China economic relations can undoubtedly take a turn for the worse.

• But at the very least, we can take comfort in the fact that a temporary detent has emerged.

Whatever happens from here will be shaped not only by each leader’s goals, but also by the economic realities that will soon set in.