China - United States: the end of tariff escalation?

After a week of escalating tariffs between the world's two leading powers, over the weekend the United States reduced tariffs on smartphones and computers imported from China to 20%. While this may be seen as the beginning of a de-escalation of the trade war, the signals sent by the Trump administration are still contradictory.

Last week, the S&P500 posted its best weekly performance since the start of the year, with a gain of 5.7%. The week was marked by the 90-day pause in reciprocal tariffs announced by Donald Trump on Wednesday. While this signal of appeasement enabled equity indices to rebound, the trade war with China intensified.

With China having decided to retaliate to every measure taken by the United States, both countries raised their customs surcharges day after day. At last count, the US is imposing 145% tariffs on Chinese products, while China is surcharging 125% on US products.

So how far will this escalation continue? At the risk of killing off suspense, we're probably at the end of this sequence. On Friday, when China raised its tariffs to 125%, a Ministry of Commerce spokesman said: "At the current level of tariffs, American products exported to China are not accepted by the market. If the US continues to play the numbers game, China will ignore it." Clearly, current levels are already prohibitive, bringing trade between the two countries to a standstill. So a further increase in tariffs would have little effect.

Decoupling or de-escalation?

For many years now, there has been the idea that the interdependence between China and the United States is too great for the countries to risk an abrupt decoupling. After all, China needs the American market to keep its factories running, and American consumers need Chinese products. In 2024, 14.7% of Chinese exports went to the US market, while 13.4% of US imports came from China.

Donald Trump's recent decisions and China's retaliation seemed to call this thesis into question. But reality is probably catching up with the White House. If the aim is to relocate production to American soil, this remains a distant and uncertain prospect. In the meantime, China produces a third of the world's manufacturing goods. And China is even a must for several product categories, from electronics to metals and rare earths.

This weekend, the Trump administration was forced to announce an exemption for smartphones and computers. An exemption that isn't really an exemption at all, since these products will ultimately be taxed at a rate of 20%. Nevertheless, this measure can be seen as a form of de-escalation. Pressure from Tim Cook, CEO of Apple - which produces around 80% of its iPhones in China - may have played a part. Above all, Donald Trump knows that he was partly elected on the objective of fighting inflation. Tariffs on China will have an impact on prices in American supermarkets.

For the time being, it's hard to see clearly what's coming next in this tug-of-war between the US and China, as the Trump administration's messages are somewhat contradictory. On the one hand, there's the "exemption" on smartphones and computers. On the other, new tariffs on semiconductors are reportedly in the pipeline. Yesterday, Donald Trump announced that an announcement would be made this week. Measures that could include smartphones and computers. We'll have to keep a close eye on how this conflict develops, but the American president will have to balance his desire to fight China against the impact on American consumers, and therefore on his constituents.