U.S. Tariffs on China Not Sustainable

By David Lawder and Trevor Hunnicutt
WASHINGTON (Reuters) – U.S. Treasury Secretary Scott Bessent remarked on Wednesday that high tariffs between the U.S. and China are unsustainable. This statement comes as President Trump’s administration has shown a willingness to de-escalate the ongoing trade war between the two largest economies, which has raised recession fears.

U.S. stock markets experienced a rally due to speculation that the two countries may reduce the trade barriers established over the previous month, although no negotiations are expected to begin soon.

Bessent indicated that the proposed tariffs of 145% on Chinese goods and 125% on U.S. products must be lowered before any trade talks can take place, emphasizing that President Trump would not take such action unilaterally. He added, “Neither side believes that these are sustainable levels. As I said yesterday, this is the equivalent of an embargo, and a break between the two countries in trade does not suit anyone’s interest.”

The White House has indicated openness to discussing a possible significant reduction in tariffs on Chinese imports to facilitate negotiations with Beijing, but will not act alone. Reports suggest the White House may consider lowering tariffs to as low as 50%. However, a White House spokesperson labeled this as “pure speculation,” asserting that Trump would announce any tariff changes himself.

While some anticipated tariff level reductions could still hinder substantial trade between the economies, German shipper Hapag-Lloyd reported a 30% cancellation rate of U.S.-bound shipments from China.

Ongoing discussions regarding the fentanyl epidemic have not produced results thus far. The perceived U.S. moderation on tariffs brought relief to markets affected by Trump’s erratic trade policies, with the S&P 500 index rising by 1.67% to 5,375.86, although it remains over 12% below its peak in February.

Jim Baird of Plante Moran Financial Advisors noted that the prevailing political and policy uncertainty may have economic implications in the near term.

SEEKING CLARITY

Bessent described the third quarter of the year as a reasonable timeframe to gain clarity on the final levels of Trump’s tariffs. Alongside the high tariffs on China, Trump has imposed a blanket 10% tariff on all other U.S. imports, along with increased duties on steel, aluminum, and autos. The administration has put a hold on targeted tariffs on several other countries until July 9 and is exploring further industry-specific levies on pharmaceuticals and semiconductors, which has unsettled financial markets and raised recession alarms.

Moreover, the Trump administration indicated via a Federal Register post on Wednesday that it has initiated a probe to determine if imports of medium- and heavy-duty trucks and parts from other countries pose a national security threat, a preliminary step toward imposing tariffs.

Simultaneously, Trump is reportedly considering exempting car manufacturers from certain tariffs, according to The Financial Times, which would also apply to truck parts regarding tariffs linked to fentanyl imports and metals.

The European Union, which faces potential 20% tariffs, would respond with counter-tariffs unless an agreement is reached before the July 9 deadline, economy minister Valdis Dombrovskis said on Wednesday, adding that the EU has proposed buying more U.S. liquefied natural gas and reducing tariffs on selected goods.

Other nations are also seeking negotiation opportunities; Vietnam’s trade minister has reportedly engaged with U.S. Trade Representative Jamieson Greer.

On Wednesday, twelve U.S. states, including New York, Arizona, and Illinois, filed a lawsuit against the Trump administration in the U.S. Court of International Trade, arguing that tariffs imposed under the International Emergency Economic Powers Act are illegal. California has joined this movement with its own separate lawsuit against the government.

The International Monetary Fund warned that these tariffs will decelerate global growth and increase debt worldwide. An S&P Global assessment indicated that business activity in the U.S. has plummeted to a 16-month low as prices for goods and services surged.

Despite these concerns, the Federal Reserve observed steady economic activity in the U.S. over the past month, albeit with significant trade-related uncertainties. Their survey highlighted a decrease in international visitors in several regions, and the outlook among several of their twelve districts has “worsened considerably.”

A Reuters/Ipsos poll indicated a decline in public approval of Trump’s economic management, with only 37% of respondents expressing approval, down from 42% since he took office in January.