As China and the US announced on Monday (May 12) a temporary 90-day tariff reduction, The Wall Street Journal (WSJ) cited economists' analysis, pointing out that this would help the US reduce the risk of recession and return its economy to the track of being a major consumer goods market. Investment bank UBS also stated that lowering tariffs on China could mean an additional 0.4 percentage points of growth for the US economy this year.
A survey in early April showed that economists had raised the probability of a US recession in the next 12 months to 45%, fearing the severe impact of a full-blown trade war between China and the US. Many economists had predicted that excessively high tariffs on Chinese goods would make the US economy unsustainable, leading to tariff reductions in the future. However, economists also worried that the tariff cuts might not come in time to prevent significant economic damage.
GDP growth forecasts raised
After the two sides reached an agreement, Oxford Economics lowered its forecast for the probability of a US recession from over 50% to 35% and raised its full-year GDP growth forecast for this year by 0.1 percentage points to 1.3%. The firm stated that tariffs, supply chain pressures, and uncertainty would all lead to growth below potential levels. Ryan Sweet, Chief US Economist at Oxford Economics, estimated that there will be many positive factors for the US economy next year, including deregulation, fiscal stimulus, and reduced policy uncertainty.
UBS economists calculated that the 90-day tariff suspension would reduce the actual tariffs paid by importers to about 35%. This move eliminates the threat of trade stagnation and helps import-dependent businesses avoid sharp cost increases or even bankruptcy risks.
However, WSJ noted that the US economy still faces headwinds, as tariffs on China and other countries remain higher than before Trump took office, which could squeeze corporate profits while forcing consumers to pay higher prices for imported goods.
WSJ emphasized that due to ongoing tariff uncertainty, businesses may hesitate to invest in new factories and equipment or hire more workers. Other recent US government measures, including tighter immigration policies, spending cuts, layoffs, and the resumption of student loan repayments, have also raised concerns among economists.
US companies rush to ship goods
Upon news of the agreement, US businesses reliant on Chinese imports seized the opportunity to expedite shipments of backlogged goods from China. Many companies, nevertheless, remain wary of Trump's tariff policies, complaining that his unpredictability makes business planning extremely difficult and adds too much uncertainty.
After learning of the tariff deal, Hightail Hair co-founder Jennifer Birch immediately arranged to ship nearly 4,000 motorcycle helmet hair nets stuck in China. CMCBrands, a clothing company, had two containers of sportswear and jackets stranded at a Chinese factory for a month. CEO Ellen Brin said she plans to ship them as soon as possible and work with clients to mitigate tariff impacts. The company has received urgent emails from its Chinese factory partners requesting the restart of production for remaining orders.
"If it had gone on any longer, it would have definitely hurt us," Brin said, because the company's shipments would have been late for the fall season "and customers would have gone elsewhere or had empty shelves."
Facing high tariffs, Musgrave Pencil President Scott Johnson had initially planned to return Chinese-made pencil slats, but changed his mind after the tariff agreement. Still, he complained that even with reduced tariffs, the total tax rate on Chinese pencil slats remains close to 60%.
While the tariff suspension is good news, US businesses must still navigate the high-tariff environment. Industry groups warn that Trump's tariffs could drive up holiday goods prices, and major ports like Los Angeles are not expecting a surge in Chinese imports. Some business leaders say the erratic tariff policies continue to make planning a major challenge.
(Source: Wen Wei Po, WSJ; English Editor: Darius)
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