What's Happening?
A 90-day pause on higher tariffs for China is due to expire on Tuesday, with uncertainty surrounding whether it will be extended. The pause followed recent China-U.S. trade talks, where officials anticipated an extension. However, no formal announcement has been made by President Trump regarding the extension. The potential increase in tariffs could significantly impact global markets, as businesses remain in limbo. The tariffs aim to address the U.S. trade deficit with China, which recently hit a 21-year low. Treasury Secretary Scott Bessent mentioned that Trump is considering another 90-day delay to finalize an agreement, which includes tariffs on most products at 50%, and additional duties related to illicit trade in fentanyl.
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Why It's Important?
The expiration of the tariff pause could have widespread implications for the global economy, affecting supply chains and commodity demand. Higher tariffs could pressure Beijing, especially as China's economy recovers from a property market downturn and the COVID-19 pandemic. The U.S. relies heavily on imports from China, giving Beijing leverage in negotiations. The trade war between the two largest economies could escalate, impacting investment decisions and inflation rates. Businesses are currently in a 'wait-and-see' mode, as the uncertainty affects their strategic planning.
What's Next?
If the tariff pause is not extended, trade tensions could escalate, leading to higher tariffs and further economic strain on both countries. This could result in businesses refraining from investments and hiring, while inflation rates may rise. A potential meeting between President Trump and Chinese leader Xi Jinping later this year could incentivize a deal, but failure to maintain the truce could lead to increased tariffs and market instability.
