That’s still high, but 30% is a lot lower than 145%, which is where the proposed US tariffs on China had spiralled to before the weekend’s negotiations.
China will do the same, reducing its levy on US imports to 10% from an equally crazy 125% this time last week.
China also agreed to suspend the non-tariff retaliatory measures it had implemented over the past six weeks, including export controls on rare earths.
This was a bigger announcement than markets were expecting, and it substantially diminishes the risk of a full-blown trade war.
The tariffs have been paused rather than cancelled, but we’ve bought ourselves another 90 days.
One would hope the dialogue between the US and China will continue, and that we’ll see a further ratcheting-down of the tensions.
It was notable that China brought a deputy minister of public safety to the negotiating table to discuss the fentanyl-related issues.
That offers hope for further reductions, as a removal of the fentanyl-related tariffs would bring Chinese tariffs back to a manageable 10%.
The S&P 500 index in the US rose sharply in response to this news, and it is close to flat on a year-to-date basis.
The US dollar has also recouped some of its losses, while gold prices have softened as the risk aversion has receded.
From where we were at just a few short weeks ago, this is some turnaround.
We now have two separate deadlines to keep an eye on as the 90-day reprieves expire, one in July for most countries and then another in August for China.
Many people thought China would end up getting the roughest end of the stick from the Trump administration, but perhaps that’s not the case.
With that in mind, it’ll be fascinating to see what this means for Europe, where we haven’t heard much on the deal-making front.
However, the US policy position does seem to have galvanised leaders across the Atlantic, even if that was unintentional.
We’ve seen a big shift in European defence policy, spending and procurement, all of which will be positive for the bloc in the years ahead.
Consider that alongside China’s increased desire to rebalance towards consumption (after the tariffs), and you’d almost suggest that Trump’s actions this year have been a positive driver of progress. Go figure.
These developments should be good for New Zealand too, as well as Australia.
Neither country was in the immediate firing line when it comes to US tariffs, but the indirect effects of a Chinese slowdown were a much bigger risk to the outlook.
The local NZX 50 index is up 7% so far in May, which sees it on track for its biggest monthly gain in more than five years.
Markets aren’t out of the woods, although this is a significant de-escalation.
It sharply reduces the risk of a global recession, while confirming that this entire process is still a negotiation.
Investors who remained calm, rather than overreacting earlier in the piece, will be glad they did.
Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
