News of the week summary - 18/05/2025
US and China declare trade truce
The United States and China have reached a temporary ceasefire in their long-running trade war, agreeing to sharply reduce tariffs on each other’s goods for the next 90 days, a move that sent global markets soaring and eased investor fears over escalating economic damage.
Following negotiations in Geneva, officials from both countries announced the tariff cuts, which significantly roll back the aggressive levies imposed earlier this year. The US will lower tariffs on Chinese exports from a punishing 145% to 30%, while China will cut its retaliatory duties from 125% to just 10%. Beijing also pledged to suspend or cancel non-tariff measures aimed at American goods.
In a joint statement, both governments emphasized their commitment to continued cooperation, communication, and what they called “mutual respect.” They also agreed to begin implementing the terms of the truce immediately.
Markets responded with enthusiasm. The S&P 500 jumped 3% by in the afternoon after the announcement, nearly erasing its year-to-date losses, while the tech-heavy Nasdaq rose 4%, boosted by gains in major firms such as Apple and Nvidia. These companies are especially vulnerable to tensions due to their dependence on Chinese supply chains.
Investor optimism was reflected across asset classes. The dollar rose 1.4% against a basket of global currencies, as traders adjusted expectations for Federal Reserve interest rate cuts, assuming less urgency now that trade risks have eased. Conversely, gold prices, which had soared amid uncertainty, fell nearly 3% as safe-haven demand dropped.
Despite the optimism, Trump cautioned that if longer-term negotiations falter, tariffs could climb again, although he ruled out a return to the 145% peak.
The deal also touched on another contentious issue: the flow of fentanyl and its chemical precursors from China to the US. Washington maintained a 20% tariff on Chinese goods tied to the dispute, in addition to a general 10% reciprocal tariff.
US inflation eases to 2.3%
Inflation in the United States dipped slightly in April to 2.3%, offering a brief reprieve as markets brace for the broader economic consequences of President Donald Trump’s sweeping tariff strategy. The decline, reported by the Bureau of Labor Statistics, came just as Trump began imposing global trade levies, raising questions about when, and how severely, their effects will materialize in consumer prices.
The year-on-year consumer price index figure fell just below economists’ forecasts, which had anticipated inflation holding steady at March’s 2.4%. On a monthly basis, prices ticked up by 0.2%, recovering from a 0.1% drop in March.
The softening in April’s inflation was largely due to declines in service-related costs. Airfares, hotel stays, and sporting event tickets all registered decreases. Meanwhile, grocery prices fell by 0.4%, with egg prices in particular plummeting 12.7% as the market corrected following earlier surges driven by avian flu outbreaks.
Despite the overall easing, analysts cautioned that the more substantial impacts of Trump’s tariffs have yet to show up in the data.
Core inflation, which excludes volatile categories such as food and energy, remained steady at 2.8%. That consistency has kept pressure on the Federal Reserve to stay cautious, even as the White House continues its aggressive push for interest rate cuts.
The Federal Reserve, which has maintained its benchmark interest rate between 4.25% and 4.5% for the past six months, is next scheduled to meet in June. Meanwhile, President Trump has intensified his criticism of Fed Chair Jay Powell, comparing talks with him to “talking to a wall” as he urges lower borrowing costs to stimulate the economy.
Traders continue to anticipate two rate cuts by the Fed before year’s end, with the possibility of a third still in play. However, the central bank’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, stood at 2.3% in March, still above the Fed’s long-term 2% target.
As the impact of tariffs continues to unfold, attention will turn sharply to forthcoming inflation reports and the Fed’s next move in what is becoming a politically and economically fraught balancing act.
Beijing pushes back on UK-US trade deal
China has voiced strong reservations over the newly signed trade agreement between the United Kingdom and the United States, accusing the two allies of crafting a deal that could deliberately exclude Chinese products from UK supply chains, a move that threatens to strain the already fragile diplomatic ties between Beijing and London.
The agreement, announced as the first major trade pact by the Trump administration since unveiling a sweeping new policy of “reciprocal tariffs” last month, includes rigorous national security requirements particularly focused on Britain's steel and pharmaceutical industries.
Beijing reacted sharply, warning that bilateral trade arrangements should not come at the cost of third parties. The response from Beijing highlights the diplomatic balancing act faced by the UK government, which under Prime Minister Sir Keir Starmer has been attempting to improve relations with China while maintaining close economic and strategic ties with Washington. The deal’s stipulations, particularly those tied to national security, place the UK in an awkward position between two rival global powers.
According to Chinese analysts and officials, the trade pact appears to be part of a broader US strategy to pressure its partners into removing China from key industrial and technological supply chains. This approach, they argue, undermines the spirit of fair trade and is likely to trigger countermeasures from Beijing.
The terms of the UK-US agreement include partial tariff relief on British steel and automotive exports. However, that relief hinges on the UK complying with strict US demands regarding the security of its supply chains and the ownership of manufacturing infrastructure. The 10% general tariff on British exports remains in place, reinforcing that the sector-specific relief is conditional.
US ports brace for cargo surge
Shipping companies and major US ports are gearing up for a turbulent period marked by dramatic shifts in cargo volumes, as businesses scramble to import holiday-season goods during a temporary pause in the US-China tariff dispute. The 90-day trade truce announced earlier this week is expected to trigger a rapid rebound in demand, following a sharp slowdown that had gripped transpacific trade routes since President Donald Trump's surprise tariff hike announcements in April.
Analysts say this break in hostilities will set off a familiar cycle of disruption. First came a steep drop in container bookings from China to the US, a reaction to the anticipated cost surge from punitive tariffs. Now, with those tariffs reduced, logistics experts predict a rush to bring in merchandise for Black Friday and Christmas before the truce expires in August.
The trade ceasefire, which lowers average US tariffs on Chinese imports from 145% to 30%, is set to last for 90 days, during which further negotiations will continue. This reprieve has led many retailers to accelerate their typical shipping schedules. Goods that would usually be imported between July and October are now being ordered early, ahead of the August 10 deadline that could mark the end of the truce.
Despite the expected increase in shipping activity, the impact won’t show up in trade volume data immediately. With ocean transit times ranging from four to six weeks, volumes are still projected to decline in the near term.