The tariff truce with China is live again. What it means for the Big Picture.

Mint

a day ago

The latest trade 'deal" between the U.S. and China underscores two uncomfortable realities for the economy and markets: Tariffs aren't going away and uncertainty is here to stay.
President Donald Trump said in a Truth Social post that negotiators in London had reached an agreement to restore last month's trade cease-fire, unblocking exports of Chinese rare earths, pending final approval from himself and his counterpart, Xi Jinping. Indications from elsewhere pointed to less certainty. Beijing said the two sides 'agreed in principle" to a framework for implementing the consensus the two leaders discussed last week. Responding to questions in front of Congress about details for the latest framework, Treasury Secretary Scott Bessent said he had just flown back at 4 a.m. and that 'We are in the midst of constructing it."
That wasn't lost on those trying to assess what comes next for the U.S.-China tariffs and what the deal outline means for negotiations with other countries. Details of what exactly was agreed upon in London were still unclear. The Treasury and the Chinese embassy in Washington, D.C., didn't immediately respond to requests for comment.
Citing people familiar with the matter, The Wall Street Journal reported that once both leaders have approved the deal, China will immediately grant export licenses for rare earths, such as those needed to make magnets used for autos and elsewhere in industry, but only for six months. The U.S. agreed to lift export controls on jet engines and ethane it implemented following the Geneva agreement, the newspaper said.
Export controls—especially those by the U.S. in recent years to restrict China's access to critical technology and China's use of its dominance in critical mineral production and processing—have been tripwires in negotiations.
'If military or defense industrial end users are getting some licenses, this would indicate that Beijing is willing to give the Trump administration more time to consider even further rollbacks of U.S. export controls, including those implemented in the last few weeks of the Biden administration," says Paul Triolo, partner at DGA-Albright Stonebridge Group. 'The Trump team could spin any pullback of some subset of these measures as part of a review of Biden era rules."
But Beijing may be wary of signs the U.S. is willing to refrain from further export controls making concessions, given the 'frantic response" of U.S. officials seeking to restore the flow of rare earths, Triolo says.
The back and forth with China reinforces the view that uncertainty over trade is unlikely to be resolved. It could reduce the U.S.'s leverage by making the government appear more in need of striking other accords.
But analysts recommend mentally separating the China conversations, where export controls and other issues are front and center, from talks with other countries, where tariffs are a bigger focus. Another differentiation: Other countries don't have the same leverage to stand their ground as China.
Henrietta Treyz, director of economic policy research at Veda Partners, expects a handful of 'deals," with China, because the U.S. needs critical minerals. She also sees a possibility of a phased-in deal with India, which would allow the U.S. to avoid raising tariffs on Indian goods to 26%, given that the country could be an important alternative to China. Tariffs would likely remain at 10%.
Bessent told a House committee on Wednesday that the administration was working on agreements with 18 important trading partners and could possibly extend the July 9 deadline for deals 'to continue good faith negotiations." Treyz expects a baseline of tariffs to stay for most countries, even if there is progress in reducing sectoral tariffs—like those on aluminum and steel—as part of broader negotiations. Other industries could see higher levies at any time, she says, as the administration targets areas such as pharmaceuticals, aircraft, and semiconductors.
Her forecast is for 'small agreements, continued tariffs and more uncertainty going forward." She expects about 150 countries, representing half a trillion dollars worth of imports to the U.S., to get notices that set a tariff rate of 10% to 25%. About 45 other countries representing $2.5 trillion of U.S. imports could see their current 10% tariff rate extended under agreements 'in principle" as negotiations continue.
That doesn't mean countries can relax. If the administration feels trading partners haven't made enough concessions by the July 9 deadline, officials could 'send a message by imposing tariffs on a significant trading partner to prove the tariff threat is credible and gain leverage in negotiations moving forward," says Dan McCarthy, a former official in the office of the U.S. Trade Representative who now runs McCarthy Consulting.
Which major trading partner could end up in that spot isn't clear.
Write to Reshma Kapadia at [e-mail]