Bassanese Bites: Crossing the chasm – May 19 2025
Global markets
Global stocks rebounded sharply last week after the US and China agreed to temporarily lower tariffs for 90 days while trade negotiations continue.
US-China trade deal
Investors breathed a sigh of relief after it became clear that the outcome of the weekend US-China trade talks exceeded expectations. Rather than merely agreeing to ‘keep talking’, both sides committed to reducing their respective tariffs by a combined 115 percentage points for 90 days.
Chinese exports to the US will still face a 30% US tariff, while US exports to China will be subject to a 10% tariff.
It is important to note that this remains an onerous tariff on Chinese imports. As a result, it continues to put upward pressure on US inflation and downward pressure on real US incomes. Moreover, uncertainty over future trade policy has not gone away.
Even if the US economy faces short term hurdles, markets may well try to ‘look across the chasm’ – as they did in mid-2020. The key development of late is that the US has de-escalated its tariff threats. Treasury Secretary Scott Bessent has emerged as the lead voice in trade negotiations, as opposed to his counterparts Peter Navarro and Howard Lutnick.
The art of the deal?
This may be spun as the ‘Art of the Deal’ – suggesting that the initial tariff hikes were merely a negotiating tactic. Navarro and Lutnick’s aggressive rhetoric could have been a ‘bad cop’ routine, with Bessent now stepping in as the ‘good cop’.
