The Tariff War Pause: Temporary Relief or a Strategic Retreat?

On Monday May 12, 2025, a sigh of relief echoed through global markets as the U.S. and China agreed to a 90-day pause in their escalating tariff war, marking a significant de-escalation between the world’s two largest economies. This follows a period of intense trade tensions, where both nations had imposed steep reciprocal tariffs—triple-digit percentages that disrupted global trade and fueled fears of a broader economic downturn. We’ve been closely monitoring this saga, especially after the U.S. initially delayed tariff implementation for all countries except China in April, only to now extend the pause to Beijing as well. While markets have rallied on the news, with both sides slashing tariffs by substantial margins, there’s a critical detail many are overlooking: the baseline tariff rate remains much higher than it was before this trade war began. What does this pause really mean for global trade, and what happens when the 90 days are up? This article dives into the details of the tariff rollback, examines the lingering challenges, and explores the uncertain future of U.S.-China trade relations in a world still grappling with economic and geopolitical volatility.

The Tariff War Pause: A Closer Look

The U.S.-China tariff war, which intensified under President Donald Trump’s second administration, reached a boiling point earlier this year. On April 2, 2025, Trump announced what he called “Liberation Day,” imposing steep reciprocal tariffs on imports from numerous countries, with China facing the brunt of the levies. The U.S. tariffs on Chinese goods soared to unprecedented levels, prompting Beijing to retaliate with equally aggressive measures. This tit-for-tat escalation saw U.S. tariffs on Chinese imports climb to a peak, while China imposed significant duties on American goods in response, alongside non-tariff measures like export restrictions on critical minerals.

The initial response from the U.S. came on April 9, when Trump announced a 90-day pause on tariffs for most countries except China, setting a universal baseline tariff of 10% for those nations while negotiations commenced. This move sparked a market rally, but China remained the outlier, facing even higher duties as tensions persisted. However, after high-level talks in Geneva over the May 11-12 weekend, the U.S. and China reached a breakthrough agreement, announced on May 13. Both nations agreed to a 90-day pause, slashing their reciprocal tariffs by a triple-digit percentage. The U.S. reduced its tariffs on Chinese imports to 30%—a combination of the 10% baseline and a 20% levy tied to fentanyl-related concerns—while China lowered its duties on U.S. goods to 10%. China also suspended some non-tariff retaliatory measures, such as restrictions on rare earth minerals critical for high-tech manufacturing.

Global markets welcomed the news—stocks surged, with the S&P 500, Nasdaq, and Dow posting significant gains, reflecting a collective sigh of relief among investors. Analysts noted the pause as a “major de-escalation,” with U.S. Treasury Secretary Scott Bessent emphasizing that “neither side wants a decoupling,” signaling a commitment to balanced trade. China’s commerce ministry echoed this sentiment, calling the agreement a step toward injecting “certainty and stability” into the global economy. On the surface, this rollback appears to be a win for both nations, easing the immediate burden on businesses and consumers while opening the door for further negotiations.

The Overlooked Reality: Tariffs Are Still High

While the tariff reduction has been hailed as a breakthrough, there’s a critical detail that many seem to be overlooking: the baseline tariff rate remains far higher than it was before this trade war began. Prior to the escalation, global trade operated under a much lower average tariff rate—closer to 2.5% for the U.S., reflecting decades of trade liberalization efforts. Now, even with the pause, the U.S. maintains a universal baseline tariff of 10% on imports from most countries, excluding Canada and Mexico under the United States-Mexico-Canada Agreement (USMCA). Sector-specific tariffs, such as those on steel, aluminum, and autos, also remain in place at 25%. For China, the 30% tariff, while a steep reduction, is still a significant burden compared to pre-escalation levels.

This discrepancy highlights a broader strategy at play. The U.S. administration came in with what some might call an audacious demand—imposing triple-digit tariffs that jolted global markets and sparked widespread retaliation. Now, by dialing back to a lower but still elevated rate, the administration can claim a negotiating victory while maintaining pressure on trading partners. Investors and businesses, relieved by the rollback, are celebrating the reduced tariffs, but they’re forgetting the bigger picture: tariffs are still much higher than they were before this trade war began. The 10% baseline alone represents a quadrupling of the pre-escalation average, and for China, the 30% rate—factoring in the fentanyl-related levy—remains a substantial hurdle. This isn’t a return to normalcy; it’s a recalibration to a new, higher-tariff reality.

What Happens After the 90-Day Pause?

The 90-day pause, set to begin on May 14 and run through mid-August 2025, buys time for negotiations, but it also introduces a new layer of uncertainty. During this period, the U.S. and China have committed to ongoing talks, with both sides expressing a desire to avoid a full decoupling of their economies. U.S. Trade Representative Jamieson Greer noted that the talks in Geneva were an “important first step,” while China’s Vice Premier He Lifeng called the agreement a foundation for reducing tensions. The suspension of non-tariff measures, like China’s restrictions on critical minerals, signals a willingness to cooperate, but the underlying issues—trade imbalances, intellectual property concerns, and geopolitical rivalries—remain unresolved.

Trade deals are being negotiated not just with China but with other nations as well. The U.S. has reported that numerous countries have approached the administration to hammer out agreements, with some deals reportedly close to completion. The goal, according to Treasury Secretary Scott Bessent, is to secure “bespoke” trade arrangements tailored to each country, potentially locking in the 10% baseline tariff rate for most partners. However, the outcome is far from certain. If negotiations falter, the U.S. could reinstate higher tariffs after the pause, potentially reigniting the trade war with China and other nations. Even if a deal is reached, the terms could still involve elevated tariffs, as the administration has shown little inclination to return to pre-escalation levels.

For China, the stakes are high. The Chinese economy, already grappling with sluggish consumer spending and a looming deflation crisis, faces additional pressure from the trade war. While the tariff reduction to 10% on U.S. goods offers relief, Beijing’s commerce ministry has urged the U.S. to “completely rectify the mistake of unilateral tariffs,” signaling that tensions could resurface if negotiations don’t meet expectations. Analysts on X have noted that this pause might be a “tactical retreat” rather than a true ceasefire, with markets potentially pricing in overly optimistic expectations. The uncertainty surrounding the post-pause landscape—whether tariffs will rise again or settle at a new baseline—keeps businesses and investors on edge, as they brace for another potential surge in prices or disruptions in global supply chains.

The Broader Context: A Shifting Trade Landscape

The tariff war pause must be viewed within the broader context of global trade dynamics. The U.S. administration’s strategy—imposing steep tariffs and then dialing back—has reshaped how nations approach trade with America. The initial escalation, which saw tariffs on Chinese goods reach triple-digit levels, prompted retaliatory measures from China, the European Union, and others, leading to a collapse in trans-Pacific trade and a surge in blanked sailings from China. The 90-day pause has sparked a rebound in freight shipments, with companies rushing to front-load inventory before the August deadline, but this comes at a cost—rising container rates and supply chain pressures, as businesses grapple with the unpredictability of future tariffs.

The elevated baseline tariff rate, even at 10%, signals a new normal for global trade. Pre-escalation rates of around 2.5% were the product of decades of trade liberalization, fostering an interconnected global economy. Now, with tariffs quadrupling that level, the cost of goods is structurally higher, impacting everything from consumer prices to corporate margins. Small businesses, in particular, face lingering frustrations, having incurred costs like bonded storage fees to avoid earlier tariff hikes, only to see the rates drop temporarily. This unpredictability makes it difficult for companies to forecast cash flows, quote prices, or make long-term investment decisions, as noted by industry leaders.

The pause also highlights the broader geopolitical chess game at play. The U.S. has used tariffs to pressure trading partners into negotiations, isolating China while offering a reprieve to others, a tactic some see as a divide-and-conquer strategy. However, this approach has strained relations with allies and competitors alike, prompting nations to explore alternatives—such as trading in local currencies or diversifying supply chains away from U.S. dependence. The BRICS bloc, which we’ve discussed previously, is pushing for de-dollarization, and the tariff war has only accelerated this trend, raising questions about the U.S. dollar’s long-term status as the world’s reserve currency.

Looking Ahead: Navigating the Uncertainty

As the 90-day pause unfolds, the future of U.S.-China trade relations remains uncertain. Negotiations over the next three months will be critical—will the two nations reach a lasting agreement, or will tariffs spike again in August? Some analysts are optimistic, pointing to the constructive tone of the Geneva talks and the mutual recognition that decoupling isn’t in either side’s interest. Others are more cautious, noting that the underlying issues—trade imbalances, fentanyl concerns, and geopolitical rivalries—won’t be resolved easily. Even if a deal is struck, the elevated baseline tariff rate suggests that trade costs will remain higher than pre-escalation levels, impacting global supply chains and consumer prices for the foreseeable future.

For investors, this pause offers a window to reassess strategies. The market rally following the announcement reflects short-term relief, but the uncertainty after the 90 days means volatility could return. Businesses are already front-loading shipments to beat potential tariff hikes, which could lead to supply chain bottlenecks and higher costs down the line. Diversifying investments beyond dollar-based assets, as we’ve discussed in the context of BRICS, remains a prudent move, especially as de-dollarization efforts gain traction. Sectors like shipping and logistics may see short-term gains from the trade surge, but consumer goods and manufacturing could face challenges if tariffs rise again.

At Vorpp Capital, we see this tariff war pause as a strategic retreat rather than a resolution. The U.S. administration’s initial hardline stance—imposing triple-digit tariffs—set a high bar, and while the rollback to 30% on Chinese goods and 10% on U.S. goods is a step back, it’s still a far cry from the pre-escalation norm of around 2.5%. Investors and businesses might be cheering the reduction, but they’re overlooking the reality: tariffs are still much higher than before, and the post-pause landscape is uncertain. Trade deals are being negotiated, but their outcomes are hard to predict, and the broader shift in global trade dynamics—toward higher costs and alternative currency systems—continues. In this environment, staying informed, flexible, and diversified is the best way to navigate the road ahead.

Do not consider this article as financial advice. We only showcase our own opinion. Always do your own due diligence before investing in alternative (volatile) investment opportunities.