海角大神

A sense of full-on crisis surrounding U.S.-China trade has eased, for now, and both sides can proceed to the less spectacular work of negotiating an agreement.

American businesses, consumers, and the world breathed a sigh of relief. World markets soared. A key measure of U.S. market uncertainty plunged. The 90-day ceasefire and retreat from hard-line positions mean the two sides have at least temporarily headed off major economic disruption.

President Donald Trump, who initiated the trade war with China, has apparently blinked. He鈥檚 now slashed the 145% tariff 鈥� or tax 鈥� on Chinese imports down to 30%. China reciprocated with an equally dramatic cut from 125% on U.S. imports to 10%, according to a joint statement released Monday. President Trump signaled Monday that he would address trade in talks with Chinese leader Xi Jinping in the coming days.

Negotiations are likely to be difficult. The world鈥檚 No. 1 and No. 2 economies keep bumping into each other. Areas of conflict range from geopolitical competition and national security concerns to market access and import restrictions on such things as cars, advanced computer chips, and opioids.

鈥淭his is a temporary respite,鈥� says Scott Kennedy, a China specialist and senior adviser at the Center for Strategic and International Studies. 鈥淚t certainly doesn鈥檛 resolve any of the outstanding fundamental issues between the U.S. and China.鈥�

Still, the latest news suggests that Mr. Trump has tested the limits of U.S. economic coercion and decided on a different strategy, analysts say.

鈥淭he size of the cuts is notable,鈥� Mary Lovely, a senior fellow at the Peterson Institute for International Economics, writes in an email. 鈥淚t鈥檚 an implicit admission by the Trump administration that they were ill-conceived. It also tells us that China would like relief from the enormous disruption of rapid decoupling.鈥�

Untenable decoupling

The prospect of decoupling 鈥� an unwinding of trade ties 鈥� appears to have proved untenable for both sides. The United States needs too many key components from China to shut down trade completely, analysts say. Likewise, China needs to hold on to the U.S. market for its goods to keep production and employment from plunging. Yet, that鈥檚 exactly what the high tariffs threatened to do.

By more than doubling the cost of each other鈥檚 goods, the two nations were effectively initiating embargoes against each other, says Brett House, an economics professor at Columbia Business School. 鈥淎t a tariff rate of 145%, it effectively shuts down trade almost entirely.鈥�

The ceasefire lessens much of the short-term uncertainty in the markets. All major U.S. stock indexes moved up Monday more than 3%, and the closely followed Volatility Index, or VIX, from the Chicago Board Options Exchange plunged 16%. That鈥檚 a collective sigh of relief from stock traders.

Other uncertainties loom, however.

Who blinked and why?

One is how much the weekend deal represents a capitulation by Mr. Trump and, thus, how much economic leverage he continues to have with China. It鈥檚 not clear what exactly Mr. Xi had to give up, if anything, points out Mr. Kennedy at the Center for Strategic and International Studies. If all China had to do was roll back its retaliatory tariffs, then it suggests the U.S. got nothing by ratcheting up tariffs in the first place. The negotiation details have not yet been made public.

Another uncertainty is how other U.S. trading partners will react to the deal. Will they demand even better terms from the U.S. than geopolitical rival China got? Each side is likely to negotiate with these other nations to try to add pressure on the other, Mr. Kennedy says.

Yet another mystery is what President Trump wants from China. The joint statement issued Monday says that both nations recognize 鈥渢he importance of a sustainable, long-term, and mutually beneficial economic and trade relationship.鈥�

鈥淲e have reached an agreement on a 90-day pause and substantially moved down the tariff levels,鈥� Treasury Secretary Scott Bessent said at a Monday press conference in Geneva, according to news reports. 鈥淏oth sides, on the reciprocal tariffs, will move their tariffs down 115%.鈥�

Others within the administration are less conciliatory and want to use the tariffs and negotiations to slow China鈥檚 growth. Still others want to lessen America鈥檚 dependence on trade, taking a more isolationist stance.

Finally, it鈥檚 not clear how corporate America will respond. Has the president eliminated enough uncertainty to jolt companies out of their wait-and-see stance?

鈥淭he tariffs are only on 鈥榩ause,鈥欌�� says Dr. Lovely of the Peterson Institute, referring to the need for ongoing negotiations. 鈥淭he hardest issues remain untouched on the table.鈥�