China Tariff Deescalation

Market Musings 5/12/2025

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

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Markets surges as US and China pause #Tariffs, but economic concerns remain…

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Markets surges as the US and China agree to pause sky-high #Tariffs. The S&P 500 popped over 3% Monday after the joint announcement. All things considered, investors likely got the best possible outcome from the weekend talks.

Both the US and China have agreed to pause higher “reciprocal” #Tariffs for 90 days to work out an agreement.

So, what does this mean? It’s not a “deal”, but it’s the next best thing and the best scenario we outlined last week. The US and China have essentially reset #Tariffs back to early April.

Coming into the meeting, the US #Tariffs on China were set at 145%. The US will temporarily scale that back to 30% – essentially the two 10% #Tariffs from February and March plus the 10% global #Tariffs.

China’s broad #Tariffs on the US were at 125% plus 2 #Tariffs packages in retaliation. China, in return, is lowering their broad #Tariffs on the US to 10% along with maintaining their targeted retaliation packages.

So, what are our takeaways?

First, this really is the best case scenario investors could have hoped for. Obviously removing #Tariffs completely would have been better, but was very unlikely to be in the cards.

However, this reprieve is still just a delay with hopes for negotiations. Essentially, China is now similar to other countries with the threat of #Tariffs returning after a 90-day timer.

While a UK “deal” was struck, the UK is small and honestly a bit too eager to please the White House while never having trade surplus in the first place. We’d put more stock in how negotiations are going for other larger partners that have options. The EU, in particular, seems to be gearing up for a more confrontational fight. We see China as even less accommodating than the EU.

And finally, this continues to prolong the uncertainty. Will a deal be made in 90 days or do we go back into embargo limbo?

We expect an import surge from China as businesses frantically try to stock up ahead of another potential embargo #Tariffs period. We also expect more pressure on #LaborMarkets as companies likely remain cautious with so much future uncertainty.

Meanwhile, we’ll see how consumers react. Price increases are likely with 30% #Tariffs and still some near-term supply chain issues from the last month. However, how much will that impact confidence? And will their wallets losses up bit?

While we’re definitely cautiously optimistic with the #Tariffs deescalation, if you go back to the start of the year, we’re still looking at 30% additional #Tariffs on China plus 10% on everyone else. That’s already a recipe for at least some #Inflation.

With negotiations ongoing, we’d expect #Tariffs drama to die down a bit. However, we’re closely watching incoming economic data to get a read on the #Tariffs’ impact starting with CPI #Inflation data on Tuesday.