Lakeside Talks Sooth U.S.-China Trade Relations

Last Updated: May 13, 2025

Highlights:

The temporary trade deal with China paused reciprocal tariffs for 90 days. Details are still emerging.
The U.S. effective tariff rate is down to 13.1% from 22.8%, according to Fitch Ratings.
In a separate report, annual consumer prices decelerated to 2.3%, the lowest since early 2021.
The release of tension on trades proved a positive catalyst for investors, but the fog has not fully cleared.

“Lake Geneva added great equanimity to what was a very positive process.” – Treasury Secretary Scott Bessent

Appearing before the press, Bessent reported a 90-day pause on reciprocal tariffs between the U.S. and China. Trade representatives between the two countries met at the lakeside villa of Switzerland’s U.N. ambassador and were able to emerge with an investor-friendly agreement. However, this is far from being over. The temporary deal puts greater pressure on the two countries to develop a mutually amicable agreement.

What investors know now is U.S. tariffs on Chinese products are down to 30% from 145%. And China will lower their tariffs on U.S. goods to 10% from 125%. The temporary agreement establishes channels to allow for further discussions and negotiations.

Since the weekend, businesses have been aggressively shoring up their “China plus one” strategy, which describes the efforts of firms reducing reliance on just one country by expanding operations in additional countries other than China.

Decreasing dependence on China does not mean decoupling all together. This is an important concept as trade negotiations continue.

Effective Tariff Rates Vary Widely

According to Fitch Ratings, the U.S. effective tariff rate (ETR) is down to 13.1% from over 22% before this weekend’s events. Although this is an improvement, the ETR is still the highest since the early 1940s and remains a risk to global growth as company trade strategies could fundamentally shift.

The effective tariff rate for China remains high because of duties enacted before this year. Fitch’s estimates include the various exclusions already approved for some energy and healthcare products.

Effective Tariff Rate Now Roughly 13%

Source: LPL Research, Fitch Ratings, Census Bureau 05/13/2025

The Fog Has Not Yet Been Lifted

Consumer prices rose 0.2% from a month ago after falling 0.1% in March. Consumer inflation for April was benign, but it’s possible that tariff threats are not yet fully realized. In the months ahead, we should see the impact on consumer prices. For now, investors can only guess what the decline in container ships out of China foreshadows for supply chains.

Some of the sticky components of inflation may not get much relief even if trade policy improves. For example, medical care and auto insurance prices continue to rise, putting acute pressure on consumers and are less sensitive to trade. But airfare, car prices, and clothing prices were among the categories that decreased in April.

Following the recent stock market rebound, LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) does not rule out the possibility of a reversal lower and retracement of a good portion of the latest advance due to the ongoing uncertainty around tariffs and the increased likelihood of a slowdown.

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Dr. Jeffrey Roach

Jeffrey Roach guides the overall view of the economy for LPL Financial Research and has over 20 years of experience in investing and economics.