US-China tariff relief temporary, growth risks persist: Fitch

Published: 2025-05-19

INSIGHTS

Fitch Ratings has warned that US-China tariff de-escalation offers only temporary relief and does not signal a return to normal trade relations.
Despite reduced tariffs, uncertainty remains, weighing on global growth prospects.
Fitch maintained its downgraded 2025 global GDP forecast at 1.9 per cent.
US policies favouring economic decoupling and import substitution may further disrupt trade flows.

Fitch Ratings has warned that the recent US-China tariff de-escalation does not mark a return to normal trade relations despite offering temporary relief. The joint statement from the Geneva trade meeting suspended a 34 per cent reciprocal tariff and cancelled a planned hike to 125 per cent, lowering US tariffs on Chinese goods to 30 per cent and Chinese tariffs on US goods to 10 per cent.

However, Fitch noted that without a lasting agreement, uncertainty will persist, continuing to weigh on global growth prospects. Although the US Effective Tariff Rate (ETR) for Chinese imports fell from 103.6 per cent to an estimated 31.8 per cent, it remains the highest for any US trade partner.

Fitch cut its 2025 global GDP forecast to 1.9 per cent last month following April’s tariff escalation and prospects of a concomitantly dramatic hit to US-Chinese trade flows. Monday’s agreement reduces the US effective tariff rate (ETR) from about 23 per cent to about 13 per cent. While this would imply a smaller hit to global growth, all else equal, it would still be far higher than the 2.3 per cent US ETR in 2024, with a near-universal 10 per cent tariff and some higher sector-specific tariffs still in place.
Additionally, the US-China agreement does not mean the trade war, which is already having a tangible economic impact, is over, Fitch said in a press release. US Treasury Secretary Scott Bessent said that the agreement continued a process of “economic decoupling for strategic necessities” whereby the US would lessen its dependence on Chinese imports, but that “generalised decoupling” was not US policy.

While this is down from 103.6 per cent before May 12, the Trump administration appears to be using tariffs to pursue an import substitution agenda aimed at boosting US manufacturing and reducing the trade deficit, making further disruption to trade flows and supply chains likely.

A surge in imports in anticipation of higher tariffs contributed to a 0.3 per cent annualised contraction in US GDP in 1Q25. Trade and related data are likely to remain volatile in the coming quarters as these effects play out. US private-sector demand remained fairly robust, but uncertainty over the outcome of US-China talks and other bilateral trade negotiations will continue to act as a brake on investment in multiple sectors and jurisdictions.

Fitch plans to reassess its global economic outlook in June, following its April downgrade of 2025 global GDP growth to 1.9 per cent.

Fibre2Fashion News Desk (KD)