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Naomi Miriam Mathew
17 August 2025 |
The following note was earlier published in The World This Week #323 & 324 Vol 7, No 32 & 33, 17 Aug 2025
What happened?
On 11 August, President Trump issued an executive order, extending the tariff truce with China by 90 days; this truce temporarily paused the escalation of new duties while both sides explored the possibility of renegotiating certain trade provisions. It was anticipated that the US will increase tariffs on Chinese products to 145 percent, and the Chinese were expected to retaliate by raising tariffs on US products to 125 Percent. The decision came hours before the expiration of the prior truce. The White House noted that the extension is only temporary and cited the continuing trade negotiations, collective financial interests, and the importance of stability during the vending period leading through the holiday trade. The rationale to continue trade talks, eliminate the US trade deficit, and economic security of the nation are mentioned in the executive order titled “Further Modifying reciprocal tariff rates to reflect ongoing discussions with the People's Republic of China”. The Treasury Secretary Scott Bessent and other top US officials posed the move as needed to stabilize the economy in the critical holiday trade period and leave the negotiations open.
What is the background?
First, a brief note on US–China trade escalation since January 2025. Shortly after Donald Trump took office in January 2025, the administration announced tariffs on Chinese electric vehicles (EVs), semiconductors, and green technology because of unfair trade and national security risks. In February, Beijing responded through counter-tariffs on American agricultural products, aircraft parts, and energy exports. In March, Washington tightened rules for investing in Chinese businesses that work in critical tech sectors. China retaliated by limiting the export of rare earth minerals, thereby increasing supply chain vulnerability at the global level.
Second, the state of US–China trade. Bilateral goods trade was over USD 583 billion in 2024, with China still being the third most important trading partner of the US. Nevertheless, the trade imbalance with China increased to USD 295.4 billion, which actively stimulated Trump to focus on protectionism once again. Tariffs are largely affecting industries like electronics, automobiles, and clean energy equipment, whereas the US agricultural exports have been hit by Chinese countermeasures. The disruption has also burdened the multinational companies that heavily rely on integrated supply chains, as global manufacturers are incurring extra expenses.
Third, impact on global supply chains. Tariffs of Washington and export controls of Beijing interfered with the free movement of semiconductors, EV batteries, and critical minerals. As a result, Asia and Europe had to deal with shortages and soaring prices among manufacturers. Multinational corporations have started to increase their pace in the China+1 diversification strategies, with Southeast Asia and India as the new hubs.
What does it mean?
First, for trade and market stability, the 90-day tariff truce functions as a critical holiday reprieve, injecting short-term optimism into both business sentiment and financial markets. US retailers and importers are also saved from any pressing cost increases on items that consumers purchase, like electronics, apparel, and toys consumer goods which play a key role during the Christmas season. World stock markets reacted to the news positively, indicating increased optimism about containing the supply chain uncertainties in the short run. This hiatus gives businesses the room to breathe as they rebalance their procurement plans and prevent any sharp price increases. Consumers will also gain protection against inflationary surges at least in the short run. But the overall relief is precarious by nature; the ongoing use of Section 301 tariffs and the legal challenges tied to the International Emergency Economic Powers Act signal that instability can flare again as the extension reneging occurs.
Second, on a short-term basis, this extension would mean negotiation over escalation. By suspending the massive tariff hike, both sides have created space for talks. The next 90 days are most likely to test the seriousness of negotiations. Though Trump prefers maximum leverage through brinkmanship, the extension shows the recognition of domestic risks, especially for US consumers, ahead of the holiday season. Trade envoys are expected to intensify talks via backchannels with a possibility of a Trump-Xi summit before November.
Third, in the long run, a structural rivalry exists that goes on regardless of an extension of the truce. The root causes, like technological ferocity, market access, intellectual property, and geopolitical competence, have not been addressed. This implies that there may be the possibility of tactical breaks, but the strategic competition will keep tariffs as a constantly used weapon in US trade politics. The likely trajectory is therefore, cyclical conflict and truce rather than definitive settlement, unless both sides see a greater incentive in stabilizing ties.
About the Author
Naomi Miriam Mathew is a postgraduate student of International Studies at the Symbiosis School of International Studies, Pune.
