U.S. President Donald Trump has announced a 90-day pause on the severe tariffs that he previously imposed on various countries worldwide. This decision is a welcome response to the growing hostility between the United States and China. Secondly, it raises concerns about China’s lack of respect for international markets. The pause provides time to assess bilateral relations without removing the bulk of the tariffs already imposed.
The tariffs deepened an already intense debate. In retaliation, China slapped historic tariffs on American goods. Indeed, as Paul Donovan, chief economist at UBS Global Wealth Management noted, the effective tariff rate has gone up accordingly. It’s currently sitting close to 20 percentage points higher than where it started the year. This increase is expected to increase price levels in the US by 2.25 percent.
In fact, the overall level of Trump’s tariffs on China have jumped to a staggering 125 percent. On top of this, he maintains a 10 percent “reciprocal” tariff that hits pretty much all countries. His administration has shown tremendous leadership by moving to ban metals. First, they’ve raised tariffs on industrial inputs, such as steel and aluminum, as well as finished products produced using these inputs, e.g., cars and car parts.
The European Union (EU), too, has not escaped the impacts of these developments. This EU is trying to deal with the highest U.S. tariffs in decades. Exports now have a 10 percent tariff on top of them, and industrial goods even worse with 25 percent. On Wednesday, the European Union formally approved retaliatory tariffs in response to the U.S. metals tariffs. This ruling further underscores the intensifying trade frictions between the two regions.
European Commission President Ursula von der Leyen celebrated the news as Trump’s announcement. She considers it an important and encouraging step towards stabilizing the global economy. She reiterated the EU’s commitment to entering into good faith negotiations with the U.S. to achieve frictionless, mutually beneficial trade.
“It’s an important step towards stabilizing the global economy.” – Ursula von der Leyen
Polish Prime Minister Donald Tusk expressed optimism regarding the 90-day pause, stating, “Let’s make the best of the next 90 days.” This pause provides a rare opportunity for both sides to take a step back and recalibrate their respective approaches, potently lowering the temperature.
Even with this short-term fix, analysts warn that the structural problems are still at play. Justin Wolfers, an economist at the University of Michigan, commented on the lingering effects of previous trade actions, saying, “Most of the pain of Liberation Day is still with us.”
Trump acknowledged that some stakeholders had become apprehensive about the ongoing trade situation, stating that “they were getting a little bit yippy, a little bit afraid,” while remarking on the necessity for action based on “the lack of respect that China has shown to the World’s Markets.”
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