In a notable shift in policy, the United States and China have initiated discussions aimed at establishing a new trade framework, just over a month after the US President announced a self-proclaimed Day of Liberation for the economy.

This impending agreement comes as a response to growing economic tensions and is poised to significantly alter the landscape of US-China trade relations.

Under the new arrangement, the United States will reduce tariffs on Chinese goods from an average of 145% to 30%, while China will reciprocate with a decrease of import duties on American products from 125% to 10%.

Additionally, China has committed to suspending or canceling non-tariff measures that have been detrimental to US exports, some of which have had considerable economic impacts.

This recalibration allows Washington to address domestic political concerns by making Chinese imports more costly while simultaneously enhancing China's competitiveness despite the proposed tariffs.

Currently, wages in the private sector in China are considerably lower, representing less than a quarter of those in the United States, compounded by government subsidies that bolster China's export competitiveness.

The drastic reduction in tariffs has caught many market operators off guard, as they did not anticipate such a swift pivot in trade policy.

JPMorgan has adjusted its economic forecasts for China upward, labeling the recent developments as 'surprisingly positive' for alleviating trade conflicts.

Analysts project that if the new lower tariffs remain in place for the year, China's annual GDP growth rate could reach 4.8%, an increase from previous estimates of 4.1%.

The rationale behind this agreement can be tied to the negative impact that the previous aggressive tariff strategy had on the US economy, resulting in slower economic growth, stagnant interest rates amid inflation concerns, and heightened uncertainty which has contributed to market volatility.

Industry leaders, reliant on imports from China, such as Apple and Nike, have voiced concern about the economic repercussions of sustained high tariffs.

Major retailers including Amazon and Walmart have similarly cautioned the White House regarding potential adverse effects on their supply chains.

Economist Enrique Feás emphasized that US ports were experiencing a slowdown in cargo shipments from China, raising fears of production disruptions.

He noted that the establishment of a 30% general tariff creates an environment conducive to resuming trade flows from Shanghai, the primary exporting port in China.

This latest agreement marks the second significant trade accord for the US following a recent deal with the United Kingdom.

On the revenue front, the anticipated income from tariffs has not materialized as originally projected by the Trump administration.

Multiple studies have cast doubt on the administration's ability to generate revenue via tariffs comparable to tax income, which was a proposed means to finance the promised tax cuts.

Current discussions suggest that the nominal 30% tariff is less onerous than implied, especially when compared to past averages.

According to the World Trade Organization, the average tariff rate imposed by the US on its trade partners in 2021 was 4.8%, with 9.2% for agricultural products.

Additionally, the US maintains several tariff lines exceeding 300%, primarily on tobacco and select agricultural products.

While the US President is empowered to negotiate international trade agreements, the Constitution reserves the congressional authority to establish tariffs and regulate external trade.

Traditionally, Congress has delegated negotiation authority to the executive branch through fast-track procedures, facilitating streamlined approval processes.

Following the Geneva agreement, the Trump administration appears to be recalibrating its previously aggressive trade strategies, with comments from the President suggesting a desire for more conciliatory relations with China.

Reports indicate that President Trump may engage in a phone conversation with Chinese President Xi Jinping soon, marking a potentially crucial step in furthering these trade discussions.

Despite the reduction in tariffs, China has not made significant concessions and remains firm on maintaining its retaliatory tariffs against the US. The Treasury Secretary pointed to the Biden administration for exacerbating the trade imbalance with China, which had also worsened under the previous Trump administration.

The administration is reportedly aiming for a fundamental tariff rate of 10% across the board for all countries, including the EU, from which it could negotiate and promote the narrative of bringing manufacturing back to the US while addressing trade deficits.

The ongoing high domestic costs within the US, however, challenge the efficacy of these tariffs in achieving intended economic goals.

Global markets have reacted positively to the latest agreement, returning to pre-Day of Liberation levels, although the overarching atmosphere of uncertainty in international trade persists.

Exporters continue to seek stability, while fluctuations in currency, particularly the strengthening dollar, further complicate trade dynamics.