Between May and November 2025, significant steps were taken by the United States and China to ease trade tensions, shifting from a state of temporary tariff freezes to a substantive reduction of trade barriers. This timeline commenced with a 90-day tariff “truce” on May 12, followed by a 90-day extension on August 12, culminating in an agreement on November 1 that involved lifting restrictions on rare earth exports and a 10% reduction in U.S. tariffs on Chinese goods. This sequence reflects a tactical de-escalation, with important political, economic, and strategic implications.
Summary of the November 1 Agreement
- Suspension of Retaliatory Tariffs: China halted retaliatory tariffs and non-tariff measures that had been in place since March 4, and issued general licenses while pausing new export controls on rare earths.
- Fentanyl Flow Mitigation: China committed to increased actions against the flow of fentanyl into the United States.
- Soybean Purchases: China agreed to purchase a minimum of 12 million metric tons of U.S. soybeans.
- Tariff Reductions: The United States cut specific tariffs on a range of Chinese goods by 10 percentage points, thereby reducing overall tariff exposure on imports, although it remains at elevated levels.
Macroeconomic and Trade Effects of the US-China Agreement
The easing of tariffs and export controls between the United States and China is poised to significantly impact trade volumes, prices, and market sentiment in both countries.
Lower tariffs are expected to swiftly enhance bilateral goods flows, particularly in agricultural sectors, such as soybeans, as well as critical inputs reliant on rare earth materials. Companies facing supply chain disruptions will likely find it easier to re-establish connections, facilitating a smoother flow of goods between the two nations.
In terms of prices and inflation, the reduction in tariffs will lower the costs of imports. This reduction could lead to a moderated increase in consumer prices in the U.S. and improve profit margins for businesses that rely on imports. If the relief provided by licenses for rare-earth components continues, their costs may also decrease.
Moreover, as political risks associated with policy de-escalation diminish, market sentiment is likely to improve. Equity and commodity markets may experience positive reactions; however, any gains could be constrained by ongoing structural frictions that remain in place.
Strategic and Industrial Consequences
The strategic outcomes of this agreement further highlight its significance. The facilitation of trade flows via reduced tariffs and export controls stands to improve economic ties, particularly concerning agriculture and supply chains that depend on rare earths. Companies may find renewed opportunities to optimize their sourcing and logistics strategies.
Nonetheless, the easing of trade barriers does not entirely eliminate underlying tensions. While the reduction in tariffs can help mitigate immediate pressures, strategic stockpiling of materials and diversification by businesses are expected to continue. This strategic caution persists due to unresolved issues around technology controls and investment screenings.
Implications for Dedollarization
The implications for dedollarization, or the long-term shift away from reliance on the U.S. dollar in international trade settlements, are layered and complex. In the short term, reduced trade tensions and renewed commitments to U.S. imports might lessen the urgency to pursue dedollarization. As geopolitical risk diminishes, trading partners may revert to conventional dollar-based transactions.
However, structural drivers behind dedollarization, such as China’s intentions to internationalize the renminbi and develop alternative payment systems, remain firmly in place. While the November agreement alleviates immediate tensions, it does not fundamentally alter these long-term strategic aspirations.
Consequently, a bifurcated approach may emerge. In the near term, the use of the dollar for goods and foreign direct investment may stabilize, whereas alternative systems for trade settlement and reserve allocation could continue to evolve as safeguards against potential future economic coercion.
Risks to Durability
Despite the promising developments, several risks could threaten the longevity of the newly established agreement. The conditionality and verification of enforcement regarding fentanyl measures and rare-earth licenses will be critical. If these measures are perceived as reversible or inadequately monitored, either nation could quickly re-escalate tariffs, reigniting pressures for dedollarization.
Domestic political dynamics also present challenges. Political shifts in either the U.S. or China could influence the agreement’s durability and effectiveness. Furthermore, ongoing tensions related to technology controls and investment are likely to impede long-term stability, perpetuating divisions even if immediate tariff issues see resolution.
Bottom line
The sequence of agreements and negotiations from May to November 2025 represents a tactical thaw in U.S.-China relations. This development is expected to alleviate short-term economic pressures and restore some level of confidence in trade channels. While immediate drivers of dedollarization may diminish due to reduced political risk and restored trade flows, the core strategic motivations pushing China and its partners toward alternative payment structures remain unaltered.
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