China, US on path to deal

The trade war isn’t quite over, but the latest talks between the world’s two economic superpowers have been positive for trade – as well as China’s economic prospects.

China and the United States have agreed to cut tariff rates by 115 per cent with a 90-day pause, which is better than ANZ Research, and much of the market, expected. In addition, as the existing 20 per cent fentanyl tariff is not part of the reduction, there is room for the US to reduce their measures further in the future.

ANZ Research believes both sides will focus on setting up a trade template, and a final deal will be reached before the US’ 2026 mid-term elections. ANZ Research expects the effective tariff on China’s exports to the US will be 33 per cent after the reset.

There are now upside risks to ANZ Research’s China forecasts of -5 per cent for exports and 4.2 per cent gross domestic product growth in 2025. Exporters are likely to seize this window to move cargo ahead of the next wave of uncertainty, so expect China's trade activities to be strong in the coming months.

De-escalation

China’s Vice Premier He Lifeng and US Treasury Secretary Scott Bessent held high-level trade talks in Geneva over May 10 and 11. Both countries agreed to a mutual 90-day pause and to cut tariff rates by 115 per cent, showing a commitment to de-escalate.

Only the 10 per cent baseline tariff from the US looks non-negotiable. Both sides will establish a working mechanism for negotiation.

ANZ Research anticipates further de-escalation discussions between China and the US within the next month. The approaching US debt ceiling in mid-July, coupled with price pressures, are expected to drive the US to engage in further trade talks.

Next, bilateral talks are likely to see the establishment of a template for trade negotiations, which may be released in the next one or two rounds of negotiations. A deal either before the mid-term elections in 2026 (a quicker resolution) or before the presidential elections in 2028 (a more comprehensive agreement) is likely.

Below is a table of key dates.

Window

Negotiations were much anticipated given the more-than-100-per-cent tariffs were unsustainable for both sides.

The most direct evidence of this is the significant drop in China’s imports and exports with the US, which fell by 14 per cent and 21 per cent respectively in April, a more rapid decline than during the first China-US trade war. China’s deflation is deepening, with the Producer Price Index (PPI) dropping to 2.7 per cent from 2.5 per cent in March.

The US, however, is facing a different scenario. ANZ Research expects early signs of the pass-through of tariffs to April’s US inflation data, with expectations of the Consumer Price Index rising by 0.3 per cent month on month and PPI rising by 0.2 per cent month on month.

ANZ Research expects the reduction in tariff rates will increase the export of Chinese products ahead of future uncertainty, and China’s trade data will remain strong in the second quarter. This supports ANZ Research’s view that US’ tariffs will not resolve its high trade deficit with China.

Raymond Yeung is Chief Economist Greater China, Zhaopeng Xing is Senior China Strategist, and Vicky Xiao Zhou is an Economist at ANZ

This is an edited version of the ANZ Research report “Productive trade talks pave the way to a Phase II deal between China and the US”, published May 12, 2025