President Donald Trump marched the US economy to the brink of a self-inflicted recession and a potential supply chain meltdown. But at the last moment, Trump decided to pull back. The US-China breakthrough unveiled Monday calls for a 90-day thaw in the trade war by slashing tariffs from suffocatingly high levels as trade was paralyzed between the world’s two biggest economies. The dramatic drop in US-China tariffs is an undeniable positive compared to just a few days ago. The breakthrough has already set off an epic party on Wall Street and is raising hopes that a tariff-driven nightmare can be avoided. Yet economists say it’s still too early to declare the US economy is out of danger altogether. Recession risks remain, even if the odds of a downturn have been dialed back a notch. Tariffs are still very high — much higher than at any point in decades. Uncertainty is even higher. Damage to confidence and trade flows won’t be undone overnight. Moreover, there is no playbook for what happens next. There is no precedent for how a modern economy responds after going through this many shocks in this short a time. “We are far from out of the woods,” said Douglas Holtz-Eakin, president of the American Action Forum and a former economic adviser to Republicans. “There is a narrative that Trump did a U-turn. He didn’t. We still have tariffs at levels we haven’t seen in a century. That’s a substantial tax increase.” ‘Decided to save Christmas’ At 145%, US tariffs on China were unsustainably high, amounting to an effective embargo on trade. Supply chain experts warned of imminent trouble, including empty store shelves. “This staves off the really disastrous consequences that were about to hit the US economy,” Erica York, vice president of federal tax policy at the Tax Foundation, told CNN. York added that Trump’s economic team backtracking from the 145% tariff rates “shows the administration realizes what a disaster it would have been.” Even though Trump has repeatedly offered a dose of tough medicine in recent weeks, including questioning how many dolls kids need to own, he has been sensitive to the image of barren store shelves as well as financial market reaction to a deepening trade war, a senior administration official told CNN’s Jeff Zeleny. “Both sides luckily decided to save Christmas,” Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote in a report on Monday. “The US side listened to the existential crisis of many small businesses.” Still, despite Trump’s decision to slash tariffs on China to 30% for at least 90 days, import taxes remain sharply higher than at the start of the year. Based on the trade framework agreements reached with China and the UK, Moody’s Analytics calculates the US effective tariff rate has dropped from 21.3% to 13.7%. That’s still the highest level since 1910. At that level, tariffs are set to add more than one percentage point to US inflation through this time next year and erase the same amount from gross domestic product (GDP), Mark Zandi, chief economist at Moody’s Analytics, told CNN. Recession odds cut, but not to zero As a result of the US-China trade war thaw, Zandi is cutting his recession forecast — but not dramatically. He now sees a 45% chance of a US recession this year, down from a peak of 60%. “The economy will have a tough year but should avoid a recession,” Zandi said in an email. “Of course, the economy will be highly vulnerable to anything else that might go wrong.” In other words, the trade war has eroded the margin for error in this economy. Justin Wolfers, an economics professor at the University of Michigan, noted on X that it’s true that US trade policy and the prospects for the economy are “much better today than they were yesterday.” But it’s also true, Wolfers said, to say that the situation is “much worse today than on Inauguration Day.” Such is the speed and turbulence of the Trump 2.0 agenda. After Trump spiked tariffs at his April 2 “Liberation Day” event, Wolfers warned the odds of a recession would reach 75% if all the tariffs kicked in and stayed in place. Now Wolfers tells CNN that the risk of a recession has fallen sharply but still remains a coin-flip at roughly 50/50. “There has been a wholly unnecessary supply chain disruption. You can’t undo that. It will take some time to work itself out,” Wolfers said in a phone interview. Nationwide chief economist Kathy Bostjancic now sees the US economy eking out slightly positive growth this year, up from her prior call for no growth at all. Nationwide still sees inflation accelerating to 3.4% this year, but that’s an improvement from 4% before the US-China breakthrough. Trump himself acknowledged on Monday that tariffs could still slingshot higher on China. Asked if tariffs would go back to 145% if no deal is reached at the end of the 90 days, Trump said: “No, but they’d go substantially higher.” He added: “I think you will have a deal, however.” More tariffs loom In other words, the US-China trade war is not over, even if it got dramatically less bad. And tariffs are not being suddenly removed from the president’s tool chest. Sector-specific tariffs still loom, including potentially on lumber, semiconductors, pharmaceuticals, copper, critical minerals and trucks. Just last week the Commerce Department set the stage for potential aerospace tariffs by launching a national security probe into imports of airplanes, jet engines and parts. The risk of further tariffs ahead is one reason RSM chief economist Joe Brusuelas is sticking to his forecast of a 55% chance of a recession over the next 12 months. “While the agreement prevented an economic decoupling, and that is significant, there are still too many details to be determined, especially those sector tariffs, to remove a recession risk from the table,” Brusuelas said. Deutsche Bank economists expressed relief on Monday about the easing trade war. “The global growth outlook is improving,” Deutsche Bank economists wrote in a report. “American trade policy has turned more conciliatory and there is now a better defined range of tariff outcomes. The peak of the trade war uncertainty is in.” Unprecedented trade uncertainty Of course, uncertainty had almost nowhere to go but down. Trade policy uncertainty, as measured by an index that mentions the topic in major US newspapers, had skyrocketed in recent months to off-the-chart levels unseen since tracking began in the 1960s. The sudden reduction in US and China tariffs will ease financial pressure on the business community but only adds to the sense of whiplash. And it remains to be seen exactly how businesses will respond to levels of uncertainty that Wolfers described as “paralyzingly high.” “It’s absolutely a manufactured crisis,” said Holtz-Eakin, who served as an economic adviser to Sen. John McCain during the 2008 presidential campaign. Wolfers said investors and the business world are still bracing for the next shoe to drop when it comes to tariff policy out of the Trump White House. “What are the chances that we have 90 days of calm ahead of us?” Wolfers said. “Today we have good news, but what would really be good news is if someone just took the button away from him.”
Trump’s China trade breakthrough might be enough to avoid self-inflicted recession
TruthLens AI Suggested Headline:
"Trump Eases China Tariffs, Providing Temporary Relief to US Economy Amid Recession Concerns"
CNN
7.0
TruthLens AI Summary
President Donald Trump's recent decision to ease tariffs on China has brought a temporary reprieve to the US economy, which was teetering on the edge of a self-inflicted recession. The breakthrough, announced on Monday, involves a 90-day pause in the trade war, with tariffs being significantly reduced from previously unsustainable levels. This change has sparked optimism in financial markets, as Wall Street reacted positively to the news, suggesting that the dire consequences of escalating tariffs could be averted. However, economists caution that despite this positive development, the risks of recession remain, as tariffs are still at historically high levels, and the overall uncertainty surrounding trade policy continues to loom large. Douglas Holtz-Eakin, president of the American Action Forum, emphasized that the situation is far from resolved, noting that the current tariffs represent a substantial tax increase that will impact economic growth and consumer confidence.
The implications of these tariff changes extend beyond immediate economic relief, as experts warn that the damage inflicted by the trade war cannot be undone quickly. While the effective tariff rate has dropped from 21.3% to 13.7%, it is still the highest level seen in over a century and is expected to contribute to inflation and slow GDP growth. Analysts have adjusted their recession forecasts slightly, with some estimating a 45% chance of recession this year, down from 60%, but they remain cautious about the economy's vulnerability to further disruptions. The ongoing uncertainty in trade policy, coupled with the potential for future tariffs, keeps the economic outlook precarious. As Trump acknowledged the possibility of increasing tariffs again if no deal is reached after the 90-day period, many in the business community are left grappling with the unpredictability of the administration's next moves. In summary, while the recent tariff reduction is a step towards stabilizing the economy, significant challenges and uncertainties remain that could hinder recovery efforts.
TruthLens AI Analysis
The article outlines a significant moment in U.S.-China trade relations, highlighting President Trump's decision to ease tariffs that were previously set at drastically high levels. This shift is portrayed as a strategic move to avert an economic downturn and to stabilize supply chains. However, while the immediate effects appear positive, the article suggests that caution is warranted due to ongoing economic uncertainty.
Purpose and Public Perception
This news piece aims to project an image of optimism regarding economic recovery while subtly acknowledging the lingering risks. By emphasizing the positive aspects of tariff reductions, it seeks to reassure the public and investors that the economy is on a better path. The framing suggests that Trump’s administration is responsive to economic realities, potentially attempting to bolster his image ahead of elections.
Potential Concealment
There is an implication that the article may downplay the severity of the economic challenges that persist, such as high tariffs and supply chain disruptions. By focusing on the positive aspects of the recent breakthrough, it could be suggested that deeper systemic issues are being overlooked. This selectivity in reporting can shape public perception in a way that minimizes the perceived risks.
Manipulative Elements
The article carries a subtle manipulative tone, primarily through its choice of language and emphasis on the positive outcomes. Phrases like "epic party on Wall Street" create a celebratory narrative that may distract from the ongoing challenges. The framing of Trump's actions as a necessary "U-turn" could serve to humanize his decision-making while also casting any criticism of his policies as unfounded.
Trustworthiness of the Information
The credibility of the article rests on its ability to present a balanced view of the economic situation. While it does provide factual information about tariff reductions and their potential benefits, the lack of in-depth analysis regarding the long-term implications and the remaining economic vulnerabilities suggests a need for caution in fully trusting the narrative presented.
Societal Impact and Future Scenarios
The potential consequences of this news could influence market behavior, with investors reacting positively to signs of stability. However, if underlying economic challenges remain unaddressed, the optimism may be short-lived. The article could resonate more with business communities and Trump supporters, promoting a narrative that aligns with their interests.
Market Effects
This news is likely to have a diverse impact on the stock market, particularly affecting companies that rely heavily on trade with China. Sectors such as technology, manufacturing, and consumer goods may see fluctuations as investors react to the news. The easing of tariffs could lead to increased market confidence, but sustained volatility may still be present.
Global Power Dynamics
In terms of global power dynamics, the U.S.-China trade relationship remains crucial. The article reflects current tensions and the precarious balance of economic power, particularly in light of the broader geopolitical landscape. The news ties into ongoing discussions about globalization and international trade practices.
The article does not exhibit clear signs of artificial intelligence influence in its writing style, though it demonstrates a structured approach to presenting information. If AI were used, it might have contributed to the organization of ideas and the selection of optimistic language, though this remains speculative. The intention behind the article appears to be to instill confidence rather than to manipulate overtly.
In summary, while the article provides significant insights into recent developments in U.S.-China trade relations, it also reflects a tendency to emphasize optimism while downplaying ongoing risks. This could lead to a skewed perception of the economic landscape.