Weekly Buzz: US-China just went from trade war to trade truce 🕊️

5 minute read

The US and China met last weekend in Switzerland and agreed to substantially reduce tariffs for the next 90 days. Businesses, consumers, and investors breathed a collective sigh of relief, but there's no guarantee that this honeymoon period will translate into lasting domestic bliss.

What went down in Switzerland?

In a breakthrough for the tariff war, the US is slashing its levies on Chinese goods from a sky-high 145% to 30%, while China is cutting its duties on American imports from 125% to 10%. Note that specific fees – like those on electronics and leftover levies from President Trump’s first term – are sticking around.

The two countries also pledged to resume formal talks and set up a system for managing trade disputes. Not bad for a weekend's work in the Alps.

This is the second big tariff deal so far – the UK got that honour a few days earlier. Select British products were granted exceptions from US tariffs, but the majority of UK exports will still carry a tax of 10%. What we’ve seen is a signal to trade partners warming up for their own negotiations: concessions may be made, but some sort of fee will probably stick.

What's the takeaway here?

The real economic effects of these on-again, off-again levies will take weeks, if not months, to show up in shipping volumes, corporate earnings reports, and inflation data. Plus, the 90-day truce may not last long enough for a larger solution – meaning there could be another round of whiplash in three months.

Still, these are positive steps – investors welcomed the news with a 3% jump for the S&P 500 – and there is a shot at longer-term de-escalation. As our CIO Insights pointed out last month, it’s likely we’re in for a lengthy negotiation process. Instead of waiting on the sidelines to see how things play out, you're better off positioning for the long haul. (For a portfolio that you can tweak to a level of risk you’re comfortable with, here’s General Investing.)

📰 In Other News: China primed its economic pump ahead of trade talks

Just days before its negotiators headed to Switzerland for those tariff talks, China rolled out a substantial stimulus package loaded with financial incentives designed to get money flowing through the economy. 

Chinese policymakers lowered interest rates on mortgages and car loans to boost consumer spending, while easing credit access for small businesses. The reserve requirement ratio for banks (our Simply Finance below breaks this down) was also cut by half a percentage point – effectively freeing up a cool 1 trillion Chinese yuan (US$138 billion). Lastly, they injected 1.1 trillion yuan (US$152 billion) through relending programs, supporting everything from tech startups to elder care facilities.

With no guarantee of a lasting solution for tariffs past the 90-day truce, Beijing will likely keep other economic tools at the ready. This could mean further rate cuts or – perhaps more substantially – direct government spending. (If you’re interested in investing in China’s growth story, our Flexible Portfolios let you customise your exposure at any time.)

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Reserve requirement ratio

The reserve requirement ratio (RRR) is the percentage of deposits that banks must hold as reserves rather than lend out. When a central bank lowers this ratio, commercial banks can lend out more of their deposits to clients, increasing the supply of money and stimulating economic activity.