The stock market is giddy on a tariff reprieve, but what’s really changed?
A 90-Day Walk Back
The Wall Street Journal reports U.S., China Agree to Large Tariff Cuts; Stocks Surge
President Trump’s “reciprocal” tariff on China will fall to 10% from 125%.
A separate 20% tariff the president imposed over what he described as China’s role in the fentanyl trade will remain.
Beijing will cut its retaliatory levies on U.S. goods to 10% from 125%.
The U.S. said reductions will last 90 days while talks continue.
Treasury Secretary Scott Bessent said meetings over a fuller deal would likely start in the next few weeks, but it would be implausible for reciprocal tariffs on China to fall below 10%.
President Trump said the trade talks achieved a “total reset” with China, calling it a very good deal, and said he might speak to Chinese leader Xi Jinping at the end of the week.
Monday’s news will be taken as a win for China, which adds risk that the truce could fall apart, said Inga Fechner, senior economist at ING. “I wouldn’t even bet on this 90-day tariff pause to hold,” Fechner said in an interview.
She said the U.S. trade deficit with China could widen as businesses restock inventories to take advantage of the lower rates. The key question, she added, is if U.S. negotiators can extract commitments from Beijing that can be presented as a win.
With an effective tariff rate of 40%, Chinese exports to the U.S. are likely to fall by up to one-third, estimates Williams at Capital Economics. While exports would have fallen far more with tariffs above 100%, this will still mark a dramatic decline in trade between the two largest economies.
145 percent tariffs now back to 10 percent plus another 20 percent for fentanyl and a more for steel and iron.
This will slow trade but not crucify it.
However, 40 percent is a lot for US small manufacturers dependent on China supply chains.
The US loses in slower growth, retaliations, and higher prices. Small businesses get clobbered.
For discussion, please see Small Businesses Will Get Hit the Hardest by Trump’s Tariffs
Small businesses were already struggling. Tariffs will end the viability of many.
The DOW is up over 900 points as I type, about 2.3 percent. The Nasdaq is up 674 points, about 3.75 percent.
Gold is down by $112 dollars.
Long term treasuries are getting hit. The 10-year treasury yield is up 8 basis points to 4.5 percent. And the 30-year long-bond is up 5 basis points to 4.88 percent.
But fiscally and fundamentally, what’s really changed?
It makes even more sense for Jerome Powell and the Fed to wait.
At some point, you realize your ability to impose tariffs ultimately depends on your ‘competitive advantage,’ not your ability to bluff.
When you don’t have the advantage (or not much of one), ‘You get nothing! You lose! Good day, sir!”‘ to quote the famous confectionery industrialist, Willy Wonka.
The crucial ‘advantage’ is now rare earth materials, and China is way ahead–the result of planning back in the 80s and 90s. No doubt this card was played in the negotiations.
And the impact? Without rare earths, the US exports only food products.
Hopefully US politicians will realize this and take appropriate action before it is too late.
A key sentence in the article: “The key question, she added, is if U.S. negotiators can extract commitments from Beijing that can be presented as a win.” Admission that they will be satisfied with something that looks good but does not have to be good for Americans.
Art of the cave. MAGA cheering this just means more dotard failures to come.
All this proves is that the tariffs were a bad idea in the first place.
Unfortunately the Chinese did not rescind their bans in exporting Rare Earths to us or the ban on importing US agricultural products or LNG.
‘Unfortunately’? Seriously. Or a message–You lose, bigly
well, this was predictable. no one thought 145% tariff would stay on. i am a bit surprised at the size of the market move, i mean it’s still 30% tariffs and the end result will probably be a tariff rate that will drive inflation hard.
it’s also interesting how Trump, the anti-globalist is building multiple billion dollar resorts ($5.5B in Qatar, $1.5B in Vietnam, a $550M Trump Tower in Saudi Arabia, another property in Oman) in OTHER countries.
What does this guy have to do to convince MAGA they voted for a charlatan laughing all the way to the bank?
Let’s start with a concept MISH has expressed before: tariffs are a tax on consumers of imports. Given that both countries agreed to tariffs on each other and not a net tariff on one country; both governments wanted to tax their own people more without the negative publicity of calling it a tax. This is pure genius. The sad thing is Americans cheered and thanked Trump for getting China to agree to the tariffs.
A different thought about tariffs and China. One strategy China could employ is to offer no tariff on American imports AND open the country for more US companies to manufacture/distribute as a means to draw business away from Taiwan and make the US even more dependent on China.
China achieved all 3 things that it wanted at the meetings in Switzerland. Tariffs dramatically lowered; a specific point person to keep negotiating with-Scott Bessent; and respect at the negotiating table, which they said Bessent provided. Win, win, win.
The tariff win will boost the businesses that were seeing a drop in US orders.
They lowered their tariff on US imports to 10%, which helps companies that import US goods.
They have already allowed many US companies to manufacture in China for decades such as GM, Apple, and Qualcomm. Which is what Trump wants to change.
I think the Chinese will do what is best for China regardless how it affects America.
Both sides bargain with their best interests in mind. Trade agreements are signed when both parties benefit. Otherwise, they are not signed.
Trump is always looking for a win/lose while everyone else is looking for win/win.
Ha ha ha. As the saying goes, “the devil is in the details”: No lowered prices for individual consumers.
Wow! Thanks for that info. If true, millions of US consumers are still screwed.
They’re going to be screwed for as long as Trump is in office.
1349 days to go.
Many pray that his stay in office or even above ground is much shorter than that.
So, a windfall for Amazon, or not?
The stock market is simply a voting booth on the bezzle. The more the US economy resembles organized white collar crime, the higher it goes. Anything that threatens law and order, locking up criminals, or forcing corporations to be liable for the risk they create, makes it go down.
We live in the Bezzleverse now.
At least the bond market always tells the truth.
Ten year up 8 bps in yield to 4.46
It seems like as long as the stock market goes up, then life is just a bowl of cherries for many. Been going on for decades. Alternatively, if it goes down (as a reversion to the mean / long term trendline), then a goat must be found.
Trump administration claiming success for failing to do what it claimed it wanted to do is peak political theater. What was accomplished by “Liberation Day?” Nothing!
What a show! Now it’s both a clown show and a comedy! I’m loving it!
It is the one thing Trump may be good at, too bad his cult is so stupid/crazy/brainwashed.
90 days? What is with all these 90 days? So what? What happens on day 89 of a 90 day decree? Ive lost track of the 90 day edicts
Rare earth embargo still in place 🙂
If it makes you feel any better, China was banning some metalloids during the Biden administration. Like rare earths, metalloids are not typically produced in the US.
https://www.reuters.com/markets/commodities/china-bans-exports-gallium-germanium-antimony-us-2024-12-03/
Hazard a guess as to why.
My guess, it’s a message. Sit down, suck it up, and take your Fentanyl. Which I suspect is retribution for the Opium Wars.
Wait, what happened to the years of famine, plague and pestilence that leftists were predicting as a result of tariffs??
Thats easy. Trump blinked.
Such breathless victimhood from the Woke Right, good job Bayleaf
Yet another idiot who said Trump had all the cards! Hahaha! Aren’t you a little surprised by how quickly he caved here. Even I thought he had more balls than this. Lol!
Trump can’t find his balls below that belly of his. Especially after Xi kicked him squarely in the nutsack.
What theatrical asshat!
“Monday’s news will be taken as a win for China, which adds risk that the truce could fall apart, said Inga Fechner, senior economist at ING.”
LOL!! Globalists are so dumb.
Lol! You said Trump had all the cards! So why did he cave so quickly?
Rare earths? China’s competitive advantage wins the day.
– The stock market is giddy on a tariff reprieve, but what’s really changed?
> Nothing at all, unless you count the next round of Negotiations, as a change?
– The “reciprocal” tariff on China will fall to 10% from 125%. A separate 20% tariff imposed over the fentanyl trade will remain.
> Sounds fair enough, to start with as a pause % to me. China is doing a similar move as well. “The Talks” are off and Yapping. If the MSM Propaganda and Comments can stay quiet, and stop looking like the totally uninformed people that they are.
Not in on the talks, you should know absolutely nothing!!! $TfU please…
You must have seen this coming. Why didn’t you tell us that Trump would cave and lower tariffs by 115% this week? Wasn’t it obvious to you 12 months ago?
Now tell us what the tariffs on China will be in 1, 3, 6 and 12 months. Since it is “so obvious” to you.
Fundamentally we’ve gone from zero trade to reduced trade. That is certainly improvement, not the kind of improvement that justifies nosebleed valuations exceeded only by 1929 and the dotcom bubble, but improvement nonetheless.
Don’t look now, but Trump has just deregulated toilets.
A few commenters here kept saying the US held all the cards so why capitulate? What about all that tariff revenue that would make us all rich and usher in a golden age? Why roll back the tariffs 90 days at all but just keep negotiating until a deal gets done that Trump can then renege on at his next temper tantrum?
This capitulation confirms the Trump admin is a joke. It’s 1349 days before Trump’s admin ends and I guess nothing will happen for the next 90 at a minimum.
There is no way to sugar coat this mess.
=1349 days before Trump’s admin ends
it will be over faster,next congress elections in less than 2 years
What makes you think a Congress of 100% Democrats can do any better–expect bigger government and greater waste.
Trump flooded the zone with so much nonsense, the GOP will simply leave that last piece of confirmed nonsense on the floor to rot, and will trot out another Trump falsehood with which to “own the evil libz” which is the GOP’s whole agenda now.
so all this is just trump’ induced BS!
DEFICIT IS STILL $2 + TLRN! IN GOOD year!
debt service is over 1+ trln in good year!
by end of trump term DEBT WILL BE 43*45 trln$. and servicing will be
$1.5*2 trln. ( debt * 4*4.5% per year)
WINING!! make bul11lshit even bul11lshiter AGAIN!
Hey Mish,
Why did the bond market react so negatively to the China-US trade truce?
it is in pre-last sentence.
=But fiscally and fundamentally, what’s really changed!!!!!!!!
Penultimate. It’s a fun, useful word.
https://www.merriam-webster.com/dictionary/penultimate
You could argue the 10 year is up due to a better growth outlook I suppose or due to risk on as everyone piles into equities.
It’s a vote of “no confidence” in US leadership abilities.
Maybe people are finally putting their money on “Trump is totally FOS all the time?”
Mish,
Can you go over the EO about setting pharmacy drug prices ? trying to explain to Family why its a bad thing.
google USSR! and communism
Its basically government price controls or seems to be. This is a far left approach which will likely reduce pharma investment. A more free market approach would be to reduce the regulatory costs of producing drugs or possibly patent reform. Its what small government fans would call a RINO plan.
He made sure to avoid the “leftist draconian statism” by turning his EO into a simple dog begging for a bone by saying “Pretty please, won’t you please lower your drug prices, sirs?” A pretty embarrassing look for a self-proclaimed dictator.
Why? It won’t happen as price controls. The only effective way is competition from overseas. As a subsidy for drugs, it will break the bank.
Trump won’t try the tariff thing again. In 90 days he’ll be onto his third new idiotic initiative.
Funny. The WSJ keeps being wrong. They’ve turned into Bloomberg. I love watching Kailee Leinz on Bloomberg being all butt-hurt when something goes right for Trump.
Went right? He did something stupid, and backed down when it blew up. Perhaps it was a learning experience.
Explain what went right for Trump in your own words like we are six year olds
I wouldn’t say the US blinked, but the real time daily elections referred to as the stock and bond markets didn’t like the trade war. Trump has to have a good economy and good recent memories by the midterms to keep the red wave going.
I personally wish we did have a real trade war. That requires Trump getting on the news, announcing it, and instructing Americans what it involves and what it takes. War is pain and it’s not easy to win, but if we don’t take on China and win somehow someway, either through a trade war or hot war, the risk and competition with them always remains. I don’t want China even close to #1, F china.
= instructing Americans
sorry , last time I heard USA IS FILLED W/ ADULTS who are in no need to be instructed!
What is it with you anti-China crazies.
Just sowing chaos so we will not pay attention to growing federal deficit and all his conflict of interest deals in the Middle East. Meanwhile small businesses are really hurting and his billionaire class could care less.
He’ll be swanning to and from his golf courses in a half billion dollar bribe from Qatar. He’s not trying to distract from anything.
There is no plan to any of this. It is pure unregulated, nuclear armed stupidity. Nothing more.
I wonder if that plane is a booby-trapped Trojan horse.
I suppose the Air Force will check it out.
He also just authorized Germany to transfer their HIMARS and Patriot missiles to Ukraine. So, “Biden’s war” is now “Trump’s war”.
About opening up China’s markets to US goods and services. Noble idea but the Chinese love to cheat on any agreement and moving away from production to internal consumption giving the Chinese people a greater percentage of GDP loosens the grip that the CCP holds. Call me skeptical. At any rate, the entire episode should be a wakeup call about the weakness of globalization and necessary product that is held by adversaries. Develop your own product where possible, which is mostly everywhere.
=but the Chinese love to cheat on any agreement
example please… w/ links
actually IT IS USA AND TRUMP RENEGADE ON EACH AND EVERY AGREEMENT
https://www.reuters.com/business/eu-challenges-china-wto-over-telecom-patent-protection-2022-02-18/
https://www.reuters.com/markets/eu-takes-china-wto-over-high-tech-patent-royalties-2025-01-20/
Bu hao.
So nothing then? Just a lowering of the artificial tariffs that Trump attempted to start a trade war with. What about all of the unfair trade tactics that China was using against the US? What about IP theft? What about currency manipulation? That’s right. None of this was really about that. It was always about trying to isolate China and slowing their progression to a world power, which they already are and will most likely surpass the US in that role within the next 10-20 years. But at least for now Trump and his press secretary can crow on about what a great win this is.
The Ukraine war showed how rampant corruption can hollow out a country – we may have forgotten this but when Russia invaded in 2022 the consensus was that they would win within days. And then it became visible how poor leadership and corruption had made the army in a paper tiger.
China is no less corrupt, and equally poorly led because speaking up is punished. Therefore I expect Chinese power to be much less than projexcted as Well.
his but when Russia invaded in 2022 the consensus was that they would win within days. And then it became visible how poor leadership and corruption had made the army in a paper tiger.
===
ONLY uneducated american mo11rons + generals would think it is possible to take over country size of France!
it is physically impossible!
MO11RON. DID YOU SKIP GEO AND HIST . LESSONS IN SCHOOL?
=made the army in a paper tiger.=
sure mo11ron!
Russia controls +100 .000 sq km of Ukraine, air space, cut off Ukraine from Azov sea, black sea by agreement,.
Russia took over nuclear plant ( worth 50 bln$ at least)
ukraine did not free up single sq km from 2022!
==
hey buddy, how is that Vietnam /Iraq/Afghanistan thing going on?
still bu1tthurt leaving Vietnam in helicopter form roof ? or Afghanistan?
The only ones saying Russia would take over the entire country in days were US Intel agencies. They said that so they could spin the battles as Russia losing. Russia never claimed they would take over all of the Ukraine in days. They did say in 2024 that they were prepared to fight for another 12 years (until 2036).
Another person who thinks history started in Feb 2022.
Well, this begins a 90-day negotiation period. The trade teams seem to respect each other. There will be give and take on both sides. Before you have your next TDS-induced stroke, let’s see what happens. You might try drinking heavily.
When you’re a loser, breaking even is a great victory.
Most Trump voters don’t know what those things are all about, and most of them don’t care. They hear Trump saying “USA wins” and they feel they own the libs for another day. It’s as simple as Pavlov made it out to be.
Abe Newman, author of “Underground Empire: How America Weaponized the World Economy”
“This is not a deal. The US just blinked. The lesson for China: US escalation cannot be maintained. For the US: we will still see inflation and the chance of recession. For the world: the end of US credibility.
US tariffs over 100 percent means no trade. The result was going to be a devastating supply shock. As the ports emptied out, the government panicked.
US walking back tariffs against China is just another moment like when Trump blinked after the bond market rebelled. The policy could not be maintained.
But that doesn’t mean that the China tariffs don’t hurt. Even at 30 percent, they will still cause unnecessary inflation. See modeling of just a 20 percent tariff.
I do not believe that a snap back in 90 days is credible. But the policy framework creates continued uncertainty. What is the US policy on tariffs and China…business doesn’t know. And that uncertainty will stifle investment/risk recession.
While we continue to shoot ourselves in the foot, China is taking advantage of how we are pulling back. As we lick our wounds from empty ports, Xi is meeting with Lula to restock their soy beans. China is playing a global game.
More generally, US walk back throws further doubt on the purpose of US trade policy. How can we demand other countries decouple from China when we cant? China is taking advantage of this confusion.
The US/China interaction again signals the US misplayed the escalation ladder, continues to stoke inflation at home, and has undermined its credibility with allies and partners. Let the omnishambles continue…”
Misplayed the escalation ladder? How would you have played it, oh smart one? By the way, the ports aren’t empty, and tariffs aren’t inflationary.
That’s because the tariffs are cancelled, and aren’t coming back.
No, that is not why ports have ships. Those ships were scheduled many months ago with cargoes loaded weeks ago. Ships do not turn on a dime. Large cargo transportation is hedged in various ways.
Massive front-loading of merchandise into the US will happen through this summer (to the extent ports can handle it) until the next rounds of trade disturbances occur.
We’re not done with this trade war – just the opening salvo.
“small businesses get clobbered”
Don’t remember that line from around 5 years ago this time.
Stay Safe!
RIP millions of small businesses during covidcon.