On May 12, 2025, in a surprising announcement, the Trump administration revealed a mutual rollback of trade measures between the United States and China. This announcement signifies a major shift in the ongoing trade war between the two nations, as it includes a significant reduction in tariffs. U.S. tariffs, which had been raised to an alarming 145 percent, will decrease to 30 percent. Additionally, Chinese tariffs on American goods will drop from 125 percent to a more manageable 10 percent.
The agreement also involves the loosening of export restrictions that China had put in place on critical minerals following what has been termed “Liberation Day.” While the announcement was welcomed, it raises new questions regarding its potential to address the complex challenges stemming from previous elevated costs and disruption of supply chains. Economists and experts assert that while this rollback is a step forward, it does little to erase the substantial damage inflicted in recent months.
The immediate impact of last month’s high tariffs was felt by U.S. firms reliant on imports, which either had to absorb elevated costs or delay purchases altogether. These actions led not only to short-term pain for businesses and consumers but may also have negative long-term effects, potentially triggering price spikes and lower employment rates. Research indicates that U.S. tariffs, particularly those imposed on Liberation Day, could reduce real income by an estimated $300 billion annually by the year 2028.
Although the announcement of reduced tariffs is seen as positive, experts point out that these tariffs remain well above levels considered optimal for economic welfare. A recent report from the National Bureau of Economic Research highlighted that a more effective tariff structure would involve lowering rates across the board and reallocating tariffs away from intermediate goods. Such reforms could enhance global competitiveness for U.S. products and lead to gains in productivity and wage growth domestically. Currently, a striking 60 percent of Trump-era tariffs target inputs used by U.S. firms, rather than finished products from strategic rivals. This setup distorts supply chains while providing minimal strategic advantages.
Another point of concern is the uncertainty surrounding the tariff rollback. The recent agreement is not permanent; both sides have only committed to a 90-day pause on trade barriers. Such instability complicates long-term planning for firms, making investment decisions particularly challenging. Academic research underscores that uncertainty in trade policies may deter investment as much as high tariffs do. Industries that are capital-intensive, such as automobiles, semiconductors, and advanced manufacturing, feel the brunt of this volatility the most.
Credibility is another significant aspect affected by this trade dynamic. The Trump administration warned that there would be consequences for trade retaliation; however, following extensive negotiations, it appears that China emerged with a lower effective tariff rate than before the escalation. This outcome undermines the administration’s earlier stance that it could consistently escalate its way to success in trade disputes, raising concerns about the overall reliability of U.S. trade policy.
Additionally, the administration’s approach has begun to alienate traditional allies while offering favor to adversaries. Although a trade deal with the United Kingdom lowered costs for vehicles like Land Rovers and Jaguars sold in America, it has not satisfied broader working-class demographics across the nation. Furthermore, allies are expressing frustration with the current U.S. approach, which increasingly resembles economic coercion. Studies show that as trade relations between the U.S. and China become weaponized, countries like Japan, South Korea, and those in the European Union are pursuing regional trade agreements without American involvement. Should the U.S. continue to engage allies more confrontationally than competitors, this trend is likely to accelerate.
In navigating this complex landscape, one must acknowledge two simultaneous realities regarding the recent tariff cuts. First, the reduction is a necessary and overdue adjustment to a previously damaging policy. Second, the continued repercussions of this policy shift—including inflation, weakened investment, and strained international relationships—are still unfolding and may contribute to long-term economic difficulties.
Politically motivated tariff shocks may achieve short-term goals, but they pose significant risks to the long-term resilience of the economy and the credibility of U.S. institutions. As the costs of unpredictability continue to rise, the administration faces increasing pressure to develop a more cohesive and resilient trade strategy moving forward.
On a somewhat hopeful note, the tariff rollback may signal a reinvigorated recognition of the importance of the American consumer by the administration. Since early April, the prevailing narrative has seemed to ignore the consumer, depicting Americans primarily as producers. However, this recent shift demonstrates an acknowledgment that prioritizing the consumer’s well-being is essential for overall economic health.
The administration’s campaign promises focused on improving the material conditions for American citizens, establishing a need to elevate living standards rather than diminish them. Therefore, while the pause in trade conflicts may leave much to be desired, it also presents an opportunity for the administration to reaffirm its commitment to the American consumer and to true economic growth. As negotiations continue and uncertainties remain, the future of U.S.-China trade relations will be a critical area to watch for both policymakers and the public alike.
image source from：https://www.csis.org/analysis/understanding-temporary-de-escalation-us-china-trade-war
