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Muhammet Ali Zurnacı: On May 12, 2025, U.S. Treasury Secretary Scott Bessent announced a 90-day pause on reciprocal tariffs between the U.S. and China, following trade talks in Geneva, Switzerland. What is your detailed analysis?
Economics 100, Chief Economist:
Executive Summary:
On May 12, 2025, U.S. Treasury Secretary Scott Bessent announced a 90-day pause on reciprocal tariffs between the U.S. and China, signaling a temporary thaw in the enduring trade tensions that have defined bilateral economic relations for over a decade. The pause, reached in Geneva trade talks, offers a tactical reprieve from escalating protectionism, but should be understood as a maneuver within a broader strategic competition rather than a structural pivot toward free trade. The implications span global supply chains, inflationary dynamics, geopolitical alignments, and domestic political economies in both nations.
Comparative & Historical Context:
This pause evokes parallels with the 2019 Phase One deal during the Trump administration—a tactical de-escalation rather than a durable resolution. Historically, trade truces between great powers tend to be temporary unless embedded in institutional restructuring (e.g., Bretton Woods post-WWII or China’s WTO accession in 2001). Unlike earlier eras of liberalization, current conditions are defined by strategic decoupling, industrial policy revivals, and techno-nationalism.
In contrast to the post-Cold War era where global trade liberalization was dominant, this move is occurring during a period of intensified “geo-economic realism.” While 1990s trade liberalization prioritized efficiency and global integration, today’s trade diplomacy is conditioned by security concerns, technological sovereignty, and labor politics.
Strategic & Relative Impact:
Winners:
- Multinational Corporations: Especially those in consumer electronics, agriculture, and automotive sectors, which faced retaliatory tariffs that disrupted cost structures and market access.
- Global South Exporters: Countries like Vietnam, Mexico, and Indonesia—who benefitted from supply chain shifts—may see slowed diversion but gain from temporary price stabilization and less volatility in trade flows.
- Central Banks: The pause can alleviate some inflationary pressures tied to imported goods, particularly in sensitive sectors like food and manufacturing inputs.
Losers:
- Hardline Protectionists in both countries, who see the truce as a strategic concession.
- Domestic Political Actors leveraging trade tensions for populist mobilization may find their narratives temporarily diluted.
Strategically, the U.S. is leveraging this pause not as a surrender of its “de-risking” campaign but as a breathing room tactic. China, meanwhile, is signaling openness to stabilize its trade surplus and restore investor confidence amid capital outflows and a struggling real estate sector. This reflects mutual recognition of economic interdependence despite strategic divergence.
Unintended Consequences & Risks:
- Narrative Confusion: The pause may be misinterpreted as a full-scale détente, leading investors to underestimate the persistence of structural decoupling pressures (e.g., semiconductor controls, AI and quantum tech restrictions).
- Moral Hazard for Industry: Firms might delay long-term diversification strategies, falsely assuming a return to pre-2018 trade stability.
- Geopolitical Signaling Risks: Allies (particularly in the EU and Asia) may view the bilateral deal as exclusionary or destabilizing if not coupled with multilateral transparency.
- Inflation Mispricing: Temporary tariff relief may lower headline inflation, leading to premature policy loosening—especially risky for the Fed navigating persistent wage pressures and supply-side stickiness.
Final Insight & Steering Caution:
While the 90-day tariff pause reflects pragmatic statecraft amid mutual vulnerabilities—U.S. electoral pressures and Chinese economic fragility—it is best understood as a “strategic intermission” in an ongoing realignment of global economic power. Neither side has conceded on core demands—technology controls, IP protection, or subsidies—indicating that this is not a rollback of geoeconomic fragmentation but a repositioning within it.
Dominant narratives suggesting a “thaw” risk obscuring the deeper structural pivot away from globalization as we knew it. Policymakers, investors, and corporate strategists must resist the temptation of short-termism and continue to plan for a world where economic diplomacy is driven less by Ricardian logic and more by strategic calculus.
“Trade truces, like ceasefires, offer space not for peace, but for repositioning.” – Dani Rodrik
Economist 100, Chief Economist
III’ Corporate