The U.S. – China trade war ended as abruptly as it began. It took just one weekend for the countries to move back to their original positions. As a result, U.S. tariffs on China were cut from 145% to 30% (the basic 10% tariff plus the 20% tariff for China’s alleged role in the U.S. fentanyl crisis), while Chinese tariffs on U.S. goods were reduced from 125% to 10%.
At first glance, it looks that the U.S. maintained a tougher stance on China. However, investors should note that China charges VAT, while the U.S. does not use the value added tax at the federal level.
The role of VAT as a hidden tariff has long been highlighted by American businessmen and negotiators. From a big picture point of view, VAT and government subsidies for businesses in various countries have served as key factors that triggered the trade war.
The U.S. and China have 90 days to negotiate a comprehensive trade deal. However, it is already possible to evaluate the results of the trade war. The U.S. has been unable to win the trade war against the world’s manufacturing center and was forced to roll back to original positions. It’s not surprising to see that global markets enjoyed robust growth after the U.S. and China reached temporary truce in the trade war between the world’s biggest economies.
Most likely, the U.S. will not be able to start the second round of the trade war even if trade deal negotiations are not successful. The damage caused by the de-facto embargo on Chinese products was too big. The pressure on the U.S. administration to solve the problem it created was growing on a daily basis. At some point, Trump and his colleagues could not ignore this pressure any longer and were forced to get back to square one.
The key threat to global risk appetite was the potential decoupling between the U.S. and China. The demo version of this scenario has clearly scared U.S. businesses, so the country will have to be cautious when reducing its dependence on China.
U.S. Treasury Secretary Bessent has already stated that the U.S. did not target generalized decoupling from China. Instead, the country aims to protect key industries, like steel, semiconductors or pharmaceuticals.
So, what does this mean for markets in the long term? The worst-case scenario has not materialized, so there’s a good chance that the appetite for risk will continue to grow. In addition, the U.S. may focus on providing additional liquidity to markets to deal with the negative impact of original tariffs, which will be bullish for markets.
Such a scenario is favorable for tech stocks and cryptocurrencies, which benefit from rising risk appetite. The traditional safe-haven asset, gold, may face some pressure in the short term. However, fundamental demand for gold will continue to increase. The chaotic actions of the U.S. administration have already forced many investors to increase their targeted allocation to gold. For government-operated investors that are not ready to buy BTC, gold is probably the only chance to diversify away from dollar-denominated debt and fiat currencies in general. Private investors, like Bitbanker clients, are not forced to choose between BTC and gold and can freely diversify their portfolios according to their preferred investment strategies.