US-China Trade Detente Would Limit Tariff Blow for Both: Bloomberg Economics

A trade detente agreed between US President Donald Trump and his Chinese counterpart Xi Jinping would limit the tariff blow to both economies and see Beijing maintain the bulk of its exports to America, Bloomberg Economics writes.

If the US drops the 20% fentanyl-related tariff on China but maintains sectoral levies and a 10% reciprocal rate, China would lose less than 10% of its exports to the US versus a projected slump of 70% if tariffs remain at today’s levels, economists Maeva Cousin and Rana Sajedi wrote in a note. The hit to US gross domestic product would shrink to 0.5% in that scenario, they said.

The prospects of such an outcome has cheered global markets after a framework agreement was reached over the weekend ahead of a meeting of the presidents of the world’s two largest economies in South Korea set for Thursday.

After talks in Malaysia wrapped up Sunday, a Chinese official said a preliminary consensus was reached on topics including export controls, fentanyl and shipping levies. US Treasury Secretary Scott Bessent later said Trump’s threat of 100% tariffs on Chinese goods “is effectively off the table” and he expected China to make “substantial” soybean purchases and defer sweeping rare earth controls.

Bloomberg Economics also modeled two other scenarios:

As things currently stand, the current patchwork of tariffs means US importers face an average duty of close to 16% from just above 2% a year ago.

“By pulling away from global trade, the US could be the biggest loser, with a GDP hit of 0.7% by 2030,” according to Cousin and Sajedi. “Any gains in domestic manufacturing are likely to be outweighed by losses in services and higher input costs, leaving the economy worse off overall.”

Bloomberg Terminal clients can read the full note HERE.