For Travis McMaster, the general manager of Cocoon USA, an outdoor and travel brand, ordering products from his foreign suppliers this year has been a lot like gambling.
After reading the news of a trade truce between the United States and China last week, Mr. McMaster was relieved to have finally gotten a win. He estimated that President Trump’s decision to lower tariffs on Chinese products would save him roughly $30,000 in tariff costs on a shipment the company has coming in from China this week — enough to perhaps hire another seasonal employee in the small Washington town where Cocoon is based.
But the tariff deal came with a downside. Cocoon had begun shifting some production to India this spring to avoid high tariffs on China. But in the past few months, Mr. Trump has raised tariffs on India by 50 percent, while dropping tariffs on Cocoon’s Chinese goods to 30 percent, scrambling the company’s plans.
Mr. McMaster lamented the time he had spent on building up production in India. At least for the time being, he said, “I’m not going to spend any more energy trying to get out of China.”
After a chaotic year of tariff threats and trade deals, the United States has landed, at least temporarily, in a surprising situation. In the face of a potentially devastating trade clash with China, Mr. Trump agreed to cut in half a 20 percent tariff he had used to punish China for its role in the flow of fentanyl.
That has pared back U.S. tariffs on certain Chinese products to levels that are nominally near or sometimes below those he has put on products from other countries, including some allies like Switzerland, India, Brazil and Canada. According to calculations by the Yale Budget Lab, the average effective tariff on Chinese goods has risen by 20.2 percentage points this year, compared with 17.3 percentage points for the rest of the world.
Not every company pays the same tariff, and other calculations that include earlier tariffs on China indicate a higher overall rate. Chad P. Bown, an economist at the Peterson Institute, has calculated an average tariff rate for China of 47.6 percent, but it is not clear how that compares with U.S. tariffs on other countries.
Companies that rely on doing business with China have been grateful for the tariff reduction, even as they scramble to parse what the latest deal means to them and how long it will last. Some economists and executives argue that the outcome may slow the move by companies to find alternatives to China, potentially complicating a longer-run effort by U.S. officials to reduce America’s dependence on Chinese supply chains.
Many companies remain intent on diversifying where they source their products and are cautious about tying their fortunes to China over the longer term. Yet the current system of tariffs removes some of the urgency for companies to find factories outside China. It also chips away at the economic advantage that companies had expected from moving factories to Brazil, Vietnam and India.
“There isn’t a great incentive, if this is the final tariff structure, to reallocate out of China,” said Brad Setser, an economist at the Council on Foreign Relations. He argued that the tariff differential between China and other countries was much smaller now than Mr. Trump had suggested in his 2024 campaign, when he proposed putting a 60 percent tariff on Chinese goods and a 10 to 20 percent tariff on products from the rest of the world.
“Contrary to what many in the administration are saying, they haven’t ended up with a tariff structure that really encourages relocation out of China,” Mr. Setser said.
The Trump administration disputed that idea, saying that its national security tariffs — which impose taxes on products like auto parts, pharmaceuticals and semiconductors — would disproportionately affect China. Officials also argued that the administration was focused on ending China’s chokehold on other products, like rare earths.
Kush Desai, a White House spokesman, said in a statement that Mr. Trump had pledged to end “America’s foreign reliance by reviving domestic manufacturing and industry.” The trade deals and trillions of dollars in investment commitments “prove that the Trump administration’s trade and tariff policies are delivering on this pledge,” he said.
China’s ability to retaliate appears to be one reason that the country is not facing more severe tariffs, as India and Brazil are. Mr. Trump has threatened repeatedly to put triple-digit tariffs on China, but Beijing responded by hitting back at the United States where it hurt. It created a system to regulate the export of rare earth minerals and clamped down on those shipments, threatening to shutter U.S. auto plants and other factories.
The strategy worked. Xi Jinping, China’s top leader, walked out of negotiations with lower fentanyl-related tariffs than countries like Canada, which have tried to placate Mr. Trump.
After a meeting in South Korea last week, Mr. Trump agreed to pause new fees on Chinese ships and delay sanctions on thousands of Chinese companies, in addition to cutting a 10 percent tariff. China said it would suspend the rollout of certain rare earths restrictions for a year and return to buying U.S. soybeans. It also said it would crack down on shipments of the chemicals used to make fentanyl.
Sean Stein, the president of the U.S.-China Business Council, said companies viewed the agreement as “a very strong step forward, giving some certainty and some predictability to to what’s happening in the U.S.-China relationship.” He agreed, however, that the deal might lessen the incentive for companies to find alternatives to China.
He said many companies have found that “in no place has it been possible to replicate the manufacturing ecosystem and cost efficiencies that you get in China.” The instability and unpredictability of where tariffs might land in other markets had made companies “doubly hesitant about expanding supply chain networks outside of China,” he added.
“At the beginning of the Trump administration, there was a very clear sense that there was going to be a lot of pressure for companies to move supply chains out of China,” Mr. Stein said. “But at this point, that pressure hasn’t materialized.”
The Numbers
In the wake of last week’s agreement, Mr. Trump will have added a 20 percent tariff to all Chinese imports so far this year. That includes the 10 percent fentanyl tariff and another 10 percent tariff that Mr. Trump said is directed at slowing the flow of Chinese imports into the United States.
A portion of Chinese imports also face an additional tariff of 7.5 to 25 percent left over from Mr. Trump’s first-term trade war. Chinese products are also hit by Mr. Trump’s global tariffs on industries like autos, steel and aluminum, as well as pre-existing tariffs from the World Trade Organization, and Chinese goods qualify for fewer tariff exclusions than many other countries’.
Although U.S. tariffs on Chinese products are high, American tariffs on certain products from other countries are now sometimes similar or higher, for reasons that make little sense.
For example, Mr. Trump has imposed a 10 percent “reciprocal” tariff on exports from Britain and Australia, now the same reciprocal rate as for China. The administration says that tariff is directed at offsetting the U.S. trade deficit, but the United States runs trade surpluses with both Britain and Australia, while it racked up a nearly $300 billion trade deficit in goods with China last year.
The United States also runs a trade surplus with Brazil. But Mr. Trump has put a 50 percent tariff on goods from Brazil and India, amid spats over Brazil’s treatment of a former president and India’s refusal to credit Mr. Trump in making peace with Pakistan. Mr. Trump has also imposed a 39 percent tariff on Switzerland in response to the country’s trade surplus with the United States, even though much of that recent trade has been gold bullion that investors have imported to hedge against tariffs.
Canada, America’s closest ally, faces a 35 percent tariff that Mr. Trump imposed in part because of his claim that Canada is a significant source of fentanyl for the United States. While in practice many goods coming from Canada are exempted through the United States-Mexico-Canada Agreement, the nominal rate is still much higher than China’s 10 percent fentanyl tariff, despite far more fentanyl coming from China than Canada.
Countries in Southeast Asia, where many companies have moved their factories after leaving China, typically now face a reciprocal tariff of 19 or 20 percent, the same as or slightly lower than the base line tariff on China. But economists said countries like Vietnam and Cambodia could be heavily affected by the administration’s plans to put an additional tax on goods that are made with a certain proportion of Chinese content.
A Range of Strategies
For many companies that have spent years planning an exodus from China, an overall tariff reduction of 10 percent on goods made in China is not big enough to lead to any sudden strategic changes. Companies also remain wary that the U.S. trade truce with China could quickly crumble, as it has before.
“Ten percent isn’t quite enough to move the needle,” said Cameron Johnson, a supply chain consultant in Shanghai. He said many of his clients are still waiting to see how things play out when Mr. Trump meets with Mr. Xi again in China next year.
“There is a bit of skepticism about whether this will hold. You’re not going to move your factory or production for six months and a 10 percent reduction,” Mr. Johnson said, referring to a comment Mr. Trump made last week about visiting Beijing in April.
Companies, particularly larger ones, have found ways to weather the volatility in the U.S.-China relationship by diversifying their supply chains through partnerships with factories in neighboring countries like Vietnam, or setting up their own factories outside China. Across southern Vietnam in Ho Chi Minh City, dozens of sprawling new industrial parks have popped up amid the influx of demand for a factory alternative to China.
“I don’t think you’ll see companies moving out of Vietnam, India and elsewhere to go back to China. It’s the big number that actually matters,” said Adam Sitkoff, the executive director of the American Chamber of Commerce in Hanoi.
But many smaller companies have not had the resources to diversify their supply chains. The truce between Mr. Trump and Mr. Xi will provide some relief for firms that are too small to negotiate new factory deals in other countries and depend on Chinese factories for highly technical work.
“It’s a strange moment of celebration,” said Patrick Soong, whose Portland, Ore., firm, Allitra, helps American companies find manufacturers in Asia. Referring to the recent agreement to cut U.S. tariffs on Chinese imports, he said, “Ten percent is not nothing and it’s effectively made China 10 percent cheaper for all of our customers.”
Ana Swanson covers trade and international economics for The Times and is based in Washington. She has been a journalist for more than a decade.
Alexandra Stevenson is the Shanghai bureau chief for The Times, reporting on China’s economy and society.
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