News of the week summary - 11/05/2025

Signs of a thaw in the US-China trade standoff

This week, Donald Trump signaled a willingness to ease tariffs on Chinese imports, hinting at a potential reduction in levies that currently reach as high as 145%. His remarks, made on his Truth Social platform ahead of a new round of high-level talks between the US and China, suggest that the administration might consider cutting tariffs by nearly half, though many see this more as a negotiation tactic than a firm commitment.

The talks, involving US Treasury Secretary Scott Bessent and Chinese Vice-Premier He Lifeng, aim to de-escalate the long-standing trade war that began during Trump’s first term. While tariffs remain in place on both sides, with the US imposing duties up to 145% on Chinese goods and China responding with tariffs as high as 125% on US imports, there are hints of softening positions. Just days before the talks, Trump agreed to lift certain tariffs on UK goods, which some observers view as a strategic move to demonstrate diplomatic flexibility.

Despite these signs, few analysts expect a lasting deal to emerge from the weekend’s negotiations. Libby Cantrill of Pimco noted that trade deals typically take well over a year to negotiate and even longer to implement. Moreover, US-China relations have deteriorated in recent years, making any quick resolution unlikely.

Interestingly, recent trade data may have bolstered China’s confidence going into the talks. Chinese exports surged 8.1% in April compared to a year earlier, despite US tariffs. This growth was largely driven by a strategic re-routing of trade toward markets in Southeast Asia, Europe, and beyond. In essence, China has managed to partially insulate itself from the US tariffs by diversifying its trade partnerships.

Beijing's decision to engage in the talks was framed as a response to global expectations, domestic interests, and lobbying from American businesses and consumers. The Chinese government had previously insisted that tariff reductions should be a precondition for negotiations, a stance that may now be softening.

The economic logic behind Trump’s original tariffs was to make Chinese goods more expensive in the US, encouraging domestic consumption of American-made products and reducing the trade deficit. However, tariffs are essentially a tax on imports, and they tend to increase costs for businesses and consumers. In the long run, such protectionist measures can distort global supply chains and weaken international trade ties.

Whether Trump’s latest rhetoric marks the beginning of a serious policy shift or is simply part of a broader negotiation strategy remains to be seen. But with both economies showing signs of resilience and interdependence, the possibility of a gradual thaw in relations can’t be ruled out — even if the road to a comprehensive agreement is long and uncertain.

US-UK trade deal offers tariff relief 

The United Kingdom has secured its first trade deal with the United States since the escalation of global trade tensions under Donald Trump’s presidency. While the agreement offers some tariff relief for key British exports, notably cars and metals, it falls short of restoring pre-trade war conditions, leaving a broad 10% tariff in place on most UK goods. Nonetheless, the deal has been hailed by both President Trump and Prime Minister Keir Starmer as a significant diplomatic milestone.

The trade pact, hastily finalized in just seven weeks after Trump’s April announcement of sweeping global import duties, is limited in scope but politically symbolic. Under the agreement, the US has suspended additional 25% tariffs on British-made cars and metals, which were particularly damaging to UK industry. This means that steel and aluminum from the UK will now be tariff-free, and the first 100,000 British cars exported to the US each year, most of Britain’s car exports to the US, will only face a flat 10% tariff.

In return, the UK has offered limited concessions. American farmers will gain better access to British markets under a new quota system, and the UK will remove tariffs on US ethanol, a key agricultural input used in food and drink production. However, the UK has maintained its food safety standards and has not opened the door to controversial US agricultural imports like hormone-treated beef or chlorine-washed chicken, a common sticking point in transatlantic trade talks.

While this agreement may provide temporary relief for British industries, it comes with strings attached. The UK has accepted new US requirements for supply chain transparency and security in sensitive sectors like steel and pharmaceuticals. These conditions are widely interpreted as part of Washington’s strategy to reduce Chinese involvement in strategic industries across allied nations. The deal explicitly links tariff relief to US national security reviews, so-called Section 232 investigations, which assess whether foreign imports threaten domestic production critical to national defense.

Critics argue that these provisions effectively allow the US to exert influence over the UK’s trade and investment decisions, particularly regarding China. Although British officials deny that the US has been given a "veto" over Chinese involvement in UK industries, the deal does commit the UK to align more closely with American priorities in managing supply chain risks. Analysts suggest this reflects a broader US effort to isolate China from key segments of the global economy, and the UK may now be a test case for such policies.

The deal also sets the stage for future cooperation. Trump and Starmer agreed to begin work on a digital trade agreement, which could address US concerns about Britain’s digital services tax, a levy that disproportionately affects American tech companies. Additionally, the UK appears to have secured promises of “preferential treatment” in the event of future tariff hikes on sectors like pharmaceuticals or the entertainment industry.

Markets reacted positively, with US equities rising as investors priced in the easing of trade tensions. The S&P 500 climbed more than 1%, reaching levels not seen since before the new tariff regime was introduced. Still, trade experts caution that the UK deal is unlikely to be replicated quickly by other US trading partners, particularly the EU, where internal divisions over how to approach China remain unresolved.

In short, the UK-US trade deal offers limited but meaningful tariff relief, while binding Britain more closely to the US’s increasingly security-focused approach to trade policy. It reflects a shift in global trade dynamics, one where national security concerns are beginning to rival traditional economic priorities, and where trade agreements serve as instruments of geopolitical alignment as much as commercial exchange.

China eases monetary policy 

Facing mounting economic headwinds from both a slowing domestic economy and an intensifying trade dispute with the US, China has announced a package of monetary easing measures designed to inject liquidity, lower borrowing costs, and support key sectors such as manufacturing, real estate, and exports.

The People’s Bank of China (PBoC) will reduce the reserve requirement ratio (RRR), the minimum amount of capital banks must hold in reserve, by 0.5 percentage points, freeing up an estimated 1 trillion yuan (about $138 billion) of long-term liquidity into the financial system. This move aims to encourage lending to businesses and consumers by giving banks more capital to work with. The average RRR across the banking sector will now drop from 6.6% to 6.2%.

At the same time, the central bank is cutting several key interest rates, including the benchmark seven-day repo rate, which will fall from 1.5% to 1.4%. This repo rate is crucial as it reflects the short-term cost of borrowing between banks and influences overall market interest rates. Lower rates are meant to make borrowing cheaper and stimulate investment and consumption.

These actions come at a moment of heightened economic vulnerability for China. The country’s export sector is feeling the pressure from renewed US tariffs, with factories reporting cancelled orders, reduced production, and even layoffs. President Trump’s new round of tariffs has prompted both sides to resume trade talks, but uncertainty around the outcome is already prompting preemptive responses from policymakers.

China’s latest policy steps are also shaped by internal challenges. Domestic demand remains subdued, and the real estate sector, a major driver of economic activity and household wealth, continues to falter. To shore up housing, the PBoC is lowering the interest rate on long-term loans used for housing purchases from 2.85% to 2.6%, aiming to stabilize property prices and encourage home buying.

In a further attempt to channel credit where it’s most needed, the PBoC will completely eliminate the reserve requirement for financial leasing and vehicle finance companies, bringing their RRR from 5% to 0%. This could help boost consumption in autos and related durable goods, areas that have shown signs of weakness.

The financial regulators are also stepping up support for exporters and public markets. Li Yunze, director of the National Financial Regulatory Administration, stated that China will introduce new financing mechanisms for struggling exporters to help them retain operations and find new markets. He also confirmed a plan to expand pilot programs allowing insurance companies to invest more in the equity market — a signal that policymakers want to bolster investor confidence and market liquidity.

Monetary easing, lowering interest rates and reserve requirements, is a common central bank strategy to stimulate economic activity. By making it cheaper to borrow and increasing the money available for loans, the goal is to encourage spending and investment. However, in China’s case, these tools also serve a political and strategic function: showing resilience amid external pressure, notably from the United States.

The timing of the measures suggests that Chinese authorities are attempting to preemptively cushion the economy ahead of renewed trade negotiations with the US. Analysts believe this allows China to maintain a strong negotiating position while signaling to domestic audiences that the government is actively protecting growth and stability.

This monetary response also illustrates how trade policy and economic policy are increasingly intertwined. As the US-UK trade deal shows signs of strategic decoupling from China, with the UK aligning more closely with US supply chain security rules, Beijing is under pressure to reinforce domestic growth through internal levers.

UK and India sign long-awaited trade deal

After three years of negotiations, the UK and India have struck a major trade agreement, one of the most comprehensive deals either country has signed in recent years, that aims to deepen economic ties by reducing trade barriers while addressing mutual political sensitivities.

At the heart of the agreement is a significant reduction in tariffs on British exports to India, particularly on goods such as whisky, gin, and cars. India's notoriously high tariffs on imported spirits, previously at 150%, will be halved initially and further reduced to 40% over the next decade. Similarly, import duties on British cars, which have exceeded 100%, will fall to 10%, though within set quotas.

In exchange, the UK has agreed to employment-related concessions aimed at Indian businesses. Most notably, Indian companies operating in the UK will be exempt from paying National Insurance contributions for up to three years on staff relocated from India. This significantly lowers the cost of temporary intra-company transfers, a long-standing demand from Indian negotiators.

The deal arrives against the backdrop of renewed global trade tensions, including the recent imposition of tariffs by the United States. Both London and New Delhi appear eager to accelerate bilateral economic cooperation in a shifting geopolitical climate. For the UK, this agreement is seen as part of its post-Brexit strategy to redefine its trade relationships beyond the European Union, following earlier deals with Australia and Japan.

Despite being hailed as a "landmark" pact, the projected economic impact remains modest, with UK government estimates suggesting a long-term GDP boost of just 0.1% by 2040. Nevertheless, it is politically significant and symbolically valuable for both governments.

For India, this is one of the most far-reaching trade liberalisation steps taken under Prime Minister Narendra Modi's leadership. Based on 2022 trade volumes, the tariff cuts will amount to £400 million per year initially, rising to around £900 million annually within a decade.

While the deal includes measures facilitating worker mobility, the UK government has emphasized that it does not alter the broader immigration framework. Indian workers brought to the UK will still need to meet salary thresholds for visas and pay the NHS surcharge applicable to immigrant workers. This distinction is critical in the current UK political climate, where immigration remains a sensitive issue, and parties like Reform UK are pushing for tighter controls.

UK consumers may benefit from lower prices and increased variety in imported goods such as clothing, footwear, seafood (like prawns), and food products, thanks to India’s agreement to reduce tariffs on certain British exports. However, both sides have protected sensitive sectors: India retains tariffs on dairy, while the UK keeps restrictions on some agricultural imports like milled rice.

While the immediate economic benefits are limited, this agreement could pave the way for broader strategic cooperation between two of the world’s largest economies. For the UK, it’s another step in building an independent trade identity post-Brexit. For India, it reflects a maturing trade policy willing to selectively lower barriers in return for mobility and global access for its businesses.

As global trade becomes more fragmented and influenced by geopolitics, bilateral agreements like this one are increasingly central to securing economic stability and political influence.