The US decision to slash tariffs on Beijing from 145 per cent to 30 per cent represents a retreat for the US President. It will sow further confusion about his objectives and strategy.
Yet it is also a victory for common sense and suggests the most economically rational figure in the administration – US Treasury Secretary Scott Bessent – is asserting more authority over trade policy. How long this will last is unclear.
There are several key insights from the Trump retreat on his China tariffs.
First, the tariff whiplash is a reminder that Trump has conflicting goals: raising revenue, gaining leverage in international negotiations, stimulating an industrial renaissance in America and reducing the US trade deficit.
“The whole trade policy is internally inconsistent,” says Marcus Noland, executive vice president at the Peterson Institute for International Economics.
“They want to impose tariffs to generate revenue in order to pay for the budget,” he said. “That means you have to have stable tariffs to generate the revenue. They have to be permanent.”
Second, the backdown is a win for China. The American Enterprise Institute’s Stan Veuger says that Beijing will now “avoid making unilateral concessions and wait Trump out until the political or market pressure kicks in.”
Noland says that “Trump basically marched up the hill to 145 per cent tariffs on China and couldn’t get anywhere and marched back down the hill.”
“I think it was foolish from the outset to think you can win a trade war with China given we have a big deficit, they have a surplus and they have a political system that is probably better able to withstand pain,” he says. “They stood him down.”
Three, the temporary 90 day deal is not the new normal. Veuger reveals his “expectation is that Trump will back down further.” Given the breakthrough, China may now be able to win extra tariff reductions by cracking down on fentanyl.
Noland expects “positive movement on fentanyl in the next 90 days.” At the same time, he says that “Trump may well put additional tariffs on pharmaceuticals which would really hit China and India.”
Four, Trump is developing a reputation for caving. Veuger says that people close to the administration were arguing until recently that, by keeping the extremely high tariffs on China, an economic decoupling was exactly what Trump was seeking to execute.
But the latest message from Bessent is that a generalised decoupling of the US and Chinese economies is no longer – or perhaps never was – on the cards.
There was an expectation a new tariff equilibrium would be achieved with 60 to 80 per cent tariffs in place. At the end of last week, Trump himself posted on his Truth Social platform that an “80 per cent Tariff on China seems right! Up to Scott B.”
Bessent ultimately decided to reduce the tariffs to 30 per cent.
Veuger reveals that, in Washington, people betting on Trump backing down is referred to as the “taco trade.”
“Taco stands for Trump Always Chickens Out,” he says. “There is no strategy. Just hyper aggressive impulses followed by a climb down.’
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Xi Jinping will take a key lesson from this week’s tariff breakthrough with Washington – he can wait out Donald Trump.