The United States and China, the two largest economies in the world, have once again stepped back from the brink of a full-blown trade confrontation. On August 12, 2025, US President Donald Trump announced a 90-day extension of the ongoing US China trade truce, a decision that has delayed significant tariff hikes which were set to take effect at 12.01 am on Tuesday.

Trump revealed the decision through his Truth Social account, stating that he had signed an executive order to extend the current terms of the trade arrangement. This means that all other aspects of the agreement will remain unchanged, providing a critical window for negotiators from both countries to address unresolved issues.

Without this extension, the US would have increased taxes on Chinese imports from an already steep 30 per cent to even higher levels. In retaliation, Beijing was prepared to impose further tariffs on US exports, threatening key American industries such as agriculture and energy.

Breathing Room for Negotiations

The additional 90 days is being seen as an opportunity for both nations to resolve contentious trade disputes. There is growing speculation that the extension could pave the way for a summit later this year between President Trump and Chinese President Xi Jinping.

US businesses with significant operations in China have welcomed the decision. Sean Stein, president of the US-China Business Council, described the move as essential for enabling productive negotiations. He stressed that reaching an agreement could improve market access in China, offer greater certainty for medium and long-term business planning, and help secure agreements on issues such as fentanyl regulation, which could reduce tariffs and reverse China’s retaliatory measures.

Stein also emphasised that an effective deal could revive US agriculture and energy exports, sectors that have suffered due to China’s countermeasures in the ongoing trade war.

Trump's Tariff Strategy

The trade standoff with China remains one of Donald Trump’s most defining economic battles. His administration has imposed double-digit tariffs on nearly every major trading partner in the world. Many countries, such as members of the European Union and Japan, have accepted tariff rates of 15 per cent to avoid harsher penalties.

According to the Budget Lab at Yale University, the average US tariff rate has surged from 2.5 per cent at the start of the year to 18.6 per cent, the highest since 1933.

China's Rare Earth Leverage

Despite US pressure, China has held its ground by leveraging its dominance in the supply of rare earth minerals and magnets, which are vital for manufacturing products like electric vehicles and jet engines.

In June 2025, both nations agreed to ease trade tensions. The US promised to scale back export restrictions on computer chip technology and ethane, while China committed to improving access to rare earths for US industries. Claire Reade, a former US trade representative for China affairs, noted that Washington had realised it did not hold a unilateral advantage in these negotiations.

Tariffs Rolled Back from Dangerous Highs

Earlier in May 2025, tensions had escalated dangerously, with tariffs soaring to 145 per cent on Chinese goods and 125 per cent on US goods. These levels threatened to bring bilateral trade to a standstill and caused market volatility.

A meeting in Geneva resulted in an agreement to scale back the tariffs to 30 per cent for US imports from China and 10 per cent for Chinese imports from the US. Since then, prolonged discussions have been ongoing to address the root causes of the dispute.

Key Issues Still Unresolved

Despite the temporary calm, major disagreements remain. The US has repeatedly raised concerns over:

• Weak protection of intellectual property rights in China.

• Government subsidies that give Chinese firms a competitive edge globally.

• Industrial policies that allegedly distort fair competition.

These factors have contributed to the US trade deficit with China, which stood at USD 262 billion last year.

Economic and Global Implications

The US China trade war has had ripple effects across the global economy, disrupting supply chains and creating uncertainty in sectors ranging from technology to agriculture. The ongoing trade truce is therefore not just about bilateral relations but also about the stability of global markets.

Economists believe that a lasting agreement could lead to lower tariffs, greater market access, and renewed investment confidence. However, any breakdown in talks could trigger a sharp escalation in tariffs, further rattling financial markets worldwide.

Outlook

With Donald Trump pushing to secure a final trade deal with China during his tenure, and Xi Jinping aiming to protect China’s economic interests, the coming months will be critical. The current 90-day extension has bought both sides valuable time — but the real challenge will be in turning this temporary truce into a comprehensive agreement that addresses market access, intellectual property protection, and trade balance issues.

For now, the world watches closely as Washington and Beijing navigate this high-stakes negotiation, knowing that the outcome will shape not only US China relations but also the future of global trade.

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