AsiaThis week, we focus on US-China trade developments in light of the economies’ joint 90-day tariff pause announcement. The extent of the interim tariff cuts has surpassed investors’ expectations. As such, the cuts have understandably boosted sentiment in Chinese equity markets (chart 1), though sentiment had already been buoyed by the increasingly conciliatory tone in US-China communications leading up to the announcement. The tariff cuts are a significant reprieve for both economies. The US is likely to see reduced price pressures on producers and consumers in the near term, while China stands to gain from a temporary easing of growth drags amid ongoing domestic challenges (chart 2).
Turning to the hard numbers, China’s April trade readings were relatively resilient, partly due to significant front-loading ahead of the prior US-imposed 145% tariffs taking effect (chart 3). As shown in chart 4, sharp declines in shipments to the US were more than offset by rising exports to Asian partners, including ASEAN, India, and Taiwan. Looking ahead, with the tariff pause beginning around mid-May, we may not see a full month’s data capturing trade responses to the earlier steep tariffs.
Next, we turn to how investors and analysts are responding. In the May survey, our Blue Chip panellists continued to mark down growth forecasts across several economies relative to end-2024 expectations (chart 5). At the same time, they raised US inflation forecasts and lowered China inflation forecasts (chart 6). However, these forecasts are likely to see favourable revisions in future surveys—barring new adverse developments—especially in light of this week’s positive news.
Latest US-China trade developments Financial market sentiment has remained fairly buoyant despite the flare-up in US-China trade tensions in April. Recent messaging from both sides has moved away from the fiery rhetoric of previous months, adopting a more conciliatory tone aimed at de-escalating rather than intensifying frictions. Encouragingly, developments earlier this week reinforced this shift: the US and China issued a joint statement agreeing to a 90-day cooling-off period as they pursue trade talks following a relationship “reset.” During this time, the US will reportedly reduce its 145% tariffs on Chinese imports to 30% by May 14, while China will lower its 125% tariffs on US imports to 10%. Markets have understandably reacted positively, as seen in chart 1, with this move representing a significant rollback of mutual tariffs and bringing rates much closer to their pre–“Liberation Day” baseline. As a result, the growth-dampening effects from elevated tariffs are now considerably more muted—though it is worth noting that these measures remain temporary.
