Published 13 May 2025
A dramatic U-turn on tariffs, engineered over a furious weekend of negotiations between the US and China, may appear to be a return to the status quo. It is not. Instead, it illustrates the consequences of rapid, unanticipated policy shifts with real economic consequences. This 90-day pause on the highest levels of tariffs imposed in history provides an opportunity to reconsider the trade agenda between the US and China, but the window is too limited and the agenda is long.
President Donald Trump swept back into office in January having threatened on the campaign trail to impose tariffs of up to 60% on China. He believed that tariffs would deliver several results, including driving manufacturing out of China and back to the United States, keeping China from pursuing unfair trade actions against the US, and providing a platform for negotiations about a wider range of topics.
On Trump’s first day, he began imposing tariffs, starting with 10% against China for fentanyl under the International Emergency Economic Powers Act (IEEPA). These were rapidly escalated to 20% and applied to nearly every product arriving from China into the US. China responded with tariff increases on imports from the US on a relatively limited basket of mostly agricultural goods.
The trade battle took a sudden turn on 2 April when Trump increased Chinese tariffs again, this time to 34% on Trump’s so-called "Liberation Day."1 China quickly retaliated, imposing 34% on US goods entering China. Within a matter of days, each side continued to escalate, ultimately resulting in reciprocal tariff rates of 125% in both directions. Under these punishing tariff rates, trade volumes have already fallen dramatically. Retailers began warning of the risks of empty shelves and businesses, especially smaller companies, cancelled orders and began laying off staff to cope with the abrupt economic changes.
However, after a marathon weekend of negotiations on 10-11 May between Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer for the United States and Vice Premier He Lifeng for China, a 90-day truce has been declared. Tariffs have been reset to much lower levels, allowing markets and many businesses to breathe a sigh of relief.
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Unpacking what is actually in place is harder than it may first appear. While the net impact of the U-turn on trade has been a dramatic fall in tariff rates compared to last month, tariffs are still very high and variable. Other changes, like new fees for ship docking2 and adjustments to de minimis rules,3 are also important.
The stop-start nature of trade adjustment has left firms with cancelled orders, uncertainty about the speed of fulfilment of new shipments, and a lack of capacity on shipping lines and other logistics networks. This means that even if lower tariffs are likely to become permanent, a restoration of trade between the US and China will not be instantly achieved.
Given high levels of confusion over what has actually happened, it is useful to unpack the tariff changes for US-China trade since the first Trump administration.
In his first term in office, Trump dramatically increased tariff levels for inbound goods from China.4 From a base rate of roughly 2%, tariffs rose to an average of just over 20% under Section 301, a domestic tool in the US for unfair trade practices. Chinese retaliation also lifted its tariffs on US goods to just over 21%.
These Section 301 tariffs and China’s retaliation applied to just under 60% of goods from China and just over 66% of goods from the US. They have remained in place and are still collected by customs today.5
Since Trump’s return in January 2025, Chinese exports have faced three additional types of tariffs. The first, as noted above, is a 20% tariff on all products for fentanyl under IEEPA. Second, since 2 April, importers of Chinese goods have had to pay a US-imposed "reciprocal" tariff rate which is now reset for China to 10%. Third, a large and growing list of products are covered by sector-specific tariffs. These are currently 25% and apply to steel, aluminum, and products made with these metals, as well as autos and auto parts.
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Some of these tariffs are "stacked" which means that they are added to one another. The fentanyl tariffs of 20% are stacked to every good. Therefore, products that receive reciprocal tariffs are currently assessed at 30% (20%+10%). Sector-specific goods that are subject to Section 232 national security like aluminum furniture must pay 45% (25%+20%). "Reciprocal" rates are not added or stacked to sector-specific tariffs.
But goods that had Section 301 tariffs in place from Trump 1.0 (and the Biden administration) must also continue to pay these tariffs, pushing the totals closer to 50% or more. Some products are also subject to additional duties under anti-dumping or countervailing duty decisions (AD/CVD), particularly steel and aluminum goods, which also must be added to the final total. Finally, goods are also still subject to whatever original most-favored-nation (MFN) tariff applied before Trump ever took office. While MFN rates are low on average, there are some peaks which can be substantial.6
In short, even the headline figures about the level of tariff relief tend to dramatically underestimate the actual amount of tariffs imposed on Chinese imports. The number of changes to tariff policy in the past 100 or so days of the Trump administration has been challenging to track, with notices in Executive Orders (EOs) amending previous EOs, which may amend other EOs, in addition to the President’s frequent and confusing social media broadcasts.7 Traders that are used to waiting for guidance from US Customs and Border Protection (CBP) to confirm technical details have often been given only a few hours of notice these days.
Early assessment has focused on who may have "won" the tariff war. While the dramatic reduction of tariffs over the weekend has been a relief, this should not be confused for victory on either side. Both the US and China are worse off, with serious economic damage inflicted on both domestic economies even across a relatively short time period.
Both sides are now to enter a 90-day period of negotiations. These are likely to be wide-ranging, covering issues that the two sides discussed at length in Trump’s first term, as well as new issues that have emerged in the years since both announced the conclusion of a bilateral Phase 1 agreement.8 It may be that future tariff reductions are in order, particularly around the 20% fentanyl rate, or it could be the case that tariffs are increased again if talks go badly.
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So far, the US has not been willing to drop its overall "reciprocal" rate below 10%, which could become a new floor for US tariffs on imports. Washington has also been unwilling to renegotiate sector-specific tariffs. As noted above, these are now higher for Chinese goods than "reciprocal" rates. With a long line of sectors in the queue for future Section 232 tariff application, including semiconductors, pharmaceuticals, lumber, copper, heavy trucks, and critical minerals, a larger and larger portion of bilateral trade could still be facing significant tariffs in the coming months and years even if "reciprocal" rates are ultimately dropped or capped at 10%.
While the first two rounds of Section 232 tariffs have been set at 25%, there is no reason to assume that this will be the same figure applied to other sectors. Products like laptops, phones, medicines, and plywood could face future tariffs much higher or much lower than 25%. Uncertainty is set to continue.
The U-turn in tariff escalation, however, does perhaps provide promising signs for other US trading partners, particularly those currently facing high levels of "reciprocal" tariffs. All goods arriving in the US from overseas are currently subject to 10% tariffs, even from partners with existing free trade agreements. But some partners, including key countries in Asia, are slated to be slapped with much higher "reciprocal" tariffs of up to 40% or more starting in July. It may be the case that these other "reciprocal" tariffs will now be dropped back to 10%. Negotiations with trade partners are currently ongoing.
It is worth noting that even 10% tariffs still represent a dramatic increase in tariff rates. In December, the average tariff for US goods was 2%. For many firms, a 10% tariff wipes out all their profit margins, making it difficult or impossible to send goods to the US at all.
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The dramatic escalation and then reduction in tariff levels over the past few weeks may appear to be a return to the status quo. It is not. Instead, it is a reminder that trade patterns are entering a period of continued high uncertainty, with higher costs ahead. The economic damage from abrupt policy shifts has been and will be severe, with firms and foreign partners now considering options that would not have been on the table for discussion in December 2024.
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[1] https://www.hinrichfoundation.com/research/article/trade-distortion-and-protectionism/impact-of-trump-reciprocal-tariffs
[2] https://www.whitecase.com/insight-alert/ustr-issues-final-section-301-actions-china-shipbuilding-investigation
[3] https://www.hinrichfoundation.com/research/article/trade-policy/killing-msme-access-to-global-trade
[4] https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart
[5] https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions
[6] https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/US_e.pdf
[7] See, for example, https://www.whitehouse.gov/presidential-actions/2025/04/addressing-certain-tariffs-on-imported-articles
[8] https://ustr.gov/phase-one
© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).
Author
Deborah Elms
Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).
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