April 2 was “Liberation Day” in America, and May 12 may have been “De-Escalation Day." The current administration eased tariff tensions with China during a weekend visit to Switzerland, with both sides engaging in substantive discussions. But while neither side settled on a comprehensive trade package, US and Chinese officials were pleased with what transpired in Geneva – and so were the global financial markets.
Hey, China, Let’s Call the Whole Thing Off
For the next 90 days, the United States and China will be at a standstill. As of May 14, the US tariff rate on Chinese imports will be 30%, down from 145%. Likewise, China's import duties on US-made products will fall to 10% from 125%. Beijing has also accepted pleas to eliminate its non-tariff trade barriers. President Donald Trump, speaking to reporters at a May 12 White House event, stated that China "agreed to open" its market.
Edward Lawrence of Fox Business asked the president if he trusts the Chinese regime to follow through on these measures. Trump said he believes Beijing will employ these measures because leaders in the world’s second-largest economy want to get a deal done immediately. “China was being hurt very badly, and they were closing up factories. They were having a lot of unrest. Then they were very happy to be able to do something with us. And the relationship is very, very good,” Trump said.
No formal deal was signed, and Trump acknowledged that both sides need "to get it papered." The president revealed that he may speak with Chinese leader Xi Jinping "at the end of the week," while Treasury Secretary Scott Bessent says he will likely meet with his counterparts "in the next few weeks" to establish "a more fulsome agreement."
"We have a process now. We have a meeting mechanism. We loosely christened it the ‘Geneva Mechanism,'" Bessent told CNBC's "Squawk Box." The Cabinet Secretary also made quite the revelation in a separate Bloomberg Television interview, telling the network that the previous administration abandoned the provisions of the Phase One trade agreement negotiated during Trump's first term.
“We had an excellent trade agreement with China, and the Biden administration chose not to enforce it. The Chinese delegation basically told us that once President Biden came into office, they just ignored their obligations,” Bessent explained.
On the optics alone, this is another victory for the Trump administration, days after securing a trade deal with the United Kingdom, the world's sixth-largest economy. Economically, however, does it achieve anything substantive for the United States?
Wall Street Is Happy
The US financial markets opened a bottle of bubbly and sang the classic jazz standard "Happy Days Are Here Again." The leading benchmark averages registered monster gains: the blue-chip Dow Jones Industrial Average soared more than 1,100 points, the tech-fueled Nasdaq Composite Index surged nearly 800 points, and the broader S&P 500 added close to 200 points. Crude oil picked up 2% and Bitcoin rose about 1%. US Treasury yields were in a sea of green, the US dollar enjoyed its best session of the year, and gold and silver tanked.
Indeed, Bessent and Trade Representative Jamieson Greer did not reach an in-depth trade pact. However, investors were ostensibly cheerful with the prospect of global trade normalizing, and stability perhaps returning to the international order. The performance on The Street might also signal that traders think Trump is softening his stance by the day, potentially negating last month’s historic “Make America Wealthy Again.”
Peter Schiff, the chief economist and global strategist at Euro Pacific Capital, provided his followers on the social media platform X something to ponder:
"People say that by imposing 145% tariffs and then backing down to 30%, Trump can leverage the threat of raising them back up to 145%. The opposite is true. By proving that the U.S. economy can't handle 145% tariffs, Trump lost any leverage he once had by threatening 145% tariffs.
"The Trump Administration claimed we had China up against the ropes. Supposedly their economy was collapsing, factories were shuttering, workers were losing their jobs, and deflation was rampant. If that was the case, why did we back off? Why not keep punching for the knockout?"
As Liberty Nation News reported, the president’s tariffs were taking a toll on China, from shrinking factory activity to declining exports to the United States. Now, Trump alluded to the current state of his trade agenda at his press conference, conveying to the press that he is “not looking to hurt China” and wants to have a friendly relationship with the Chinese regime. True, China was and is hanging by a thread, so why not wait a little longer?
Meanwhile, it would be almost impossible for China to suddenly abandon all of its non-tariff trade barriers over a 90-day period. The 2025 National Trade Estimate Report, a prelude to the April 2 tariff plans, highlighted the plethora of non-monetary trade barriers in China, including quotas for agricultural commodities, poor food safety standards, government procurement, intellectual property theft, "bad faith trademark registration," industrial subsidies, and many more. The report does not mention the Chinese Communist Party's currency manipulation practices. These are issues that have compounded over the last 25 years, so thinking they will be dismantled by August might be naive.
What’s the Baseline Here?
In his post-meeting media rounds, Bessent confirmed this was merely a 90-day pause, not a trade agreement. So, what would a deal with China look like? Perhaps the answer is the previous week’s US-UK pact that nibbled around the edges, ironed out some wrinkles, left 10% tariffs intact, and potentially did little to bolster each other’s economies. It is possible that President Trump did not anticipate the fierce backlash that occurred in the financial markets before and after April 2. To change course, the administration may be trying to wrap things up quickly and secure easy victories to save face. Whatever the motive is, the US stock market is happy. Is MAGA Country happy too?
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