Stepping Away from the Brink: U.S.-China Trade Deal Offers 90-Day Tariff Reduction
Client Alert | May 15, 2025
On May 12, 2025, the United States and China announced that each country would reduce tariff rates on the goods of the other country by 115%, marking a significant breakthrough in the rapidly escalated trade war.
On May 12, 2025, the White House released a Joint Statement with the People’s Republic of China, accompanied by a Fact Sheet, announcing a significant step back from the high tariff rates each country had imposed on the goods of the other since the beginning of April. On the same day, President Trump issued an Executive Order titled “Modifying Reciprocal Tariff Rates to Reflect Discussions with the People’s Republic of China” (“May 12 Order”), directing relevant U.S. agencies to implement reduced tariffs on goods from China. This alert provides an overview of the impactful commitments made in the Joint Statement by the United States and China, where both governments recognized “the importance of the critical bilateral economic and trade relationship between both countries and the global economy” and committed to take certain actions by May 14, 2025, to substantially reduce the previously imposed tariffs.
The Joint Statement marks a significant breakthrough, signaling that both the United States and China have pulled back from the brink of a more serious trade war and a potential collapse in bilateral economic relations. As noted by Treasury Secretary Scott Bessent, the United States does “not want a generalized decoupling from China.” While the Joint Statement involves mutual concessions, it remains expressly a temporary measure rather than a comprehensive or lasting resolution. While much remains to be negotiated, the Joint Statement represents a hopeful step forward.
I. U.S. Reduces Tariffs on Chinese Goods Imposed under IEEPA to 30% for the
Initial Period of 90 Days
The May 12 Fact Sheet notes that the United States and China will each lower tariffs by 115% while retaining an additional 10% tariff. Consistent with this statement, effective May 14, 2025, Chinese goods, including those originating in Hong Kong and Macau, will be subject to a total of 30% tariffs imposed under the International Emergency Economic Powers Act (IEEPA) for an “initial period of 90 days.” These emergency tariffs will be applied in addition to any other applicable tariffs, including tariffs imposed under Section 232, Section 301, or “most favored nation” duties. Specific breakdowns are provided below.
10% So-Called “Reciprocal” Tariffs
Pursuant to Section 2 of the May 12 Order, effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 14, 2025, all articles imported into the United States from China, including Hong Kong and Macau, will be subject to an additional ad valorem tariff of 10% under the so-called “reciprocal” tariffs imposed by Executive Order 14257 of April 2, 2025. The prior April 2 executive order had imposed broad-reaching so-called “reciprocal” tariffs on all U.S. trading partners except for Mexico and Canada. The original country-specific rate for goods from China announced in that order was 34%. Under the May 12 Order, 24 percentage points are “suspended” for 90 days and replaced by the 10% duty. The May 12 Order removes the retaliatory tariff rates announced in subsequent executive orders of early April, notably the increased tariffs imposed by Executive Order 14259 (increasing the rate to 84%) and Executive Order 14266 (increasing the rate to 125%).
As a consequence of the May 12 Order, if a new deal is not reached during the initial period of 90 days, it appears that the United States may raise the “reciprocal” duty rate on Chinese goods to the originally announced 34%.
20% IEEPA-Fentanyl Tariffs and Other Tariffs that Continue to Apply
The May 12 Fact Sheet clarifies that the United States will retain all duties imposed on China prior to April 2, 2025, including: (i) Most Favored Nation tariffs; (ii) tariffs imposed under Section 301; (iii) industry-sector tariffs imposed under Section 232; and (iv) tariffs imposed pursuant to IEEPA related to the fentanyl-related national emergency announced and expanded in Executive Order 14195.
By way of background, on February 1, 2025, President Trump issued an executive orderimposing an additional 10% ad valorem rate of duty to all articles that are products of China or of Hong Kong, citing a national emergency with respect to illegal drugs entering the United States and China’s alleged failure to arrest, seize or otherwise intercept chemical precursor suppliers and money launderers connected to the illegal drug trade. President Trump subsequently increased such duties on China to 20%, effective March 4, 2025, citing China’s continued failure to adequately respond to the emergency. Thus, the total IEEPA-related tariffs imposed on goods from China is now 30%.
In addition, the Section 301 tariffs, imposed during the first Trump Administration in response to certain technology transfer practices in China, generally range from 7.5% to 25%, with certain products subject to higher duties up to 100%. Consequently, the effective average rate of duty for goods from China is approximately 40%-55%.
De Minimis Tariffs Adjustments
Section 4 of the May 12 Order decreases the tariff rate applicable to low-value imports from China (i.e., goods previously eligible for duty-free treatment under the de minimis exclusion) from 120% to 54%.
By way of background, the de minimis statutory exemption allows many shipments valued at $800 or less to enter the United States duty-free. Section 2(c)(i) of Executive Order 14256 of April 2, 2025 (Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China as Applied to Low-Value Imports) eliminated the de minimis exception for China imports, effective May 2, 2025. Subsequently, Executive Order 14259 and Executive Order 14266 increased the duty rate on such goods.
The May 12 Order decreases the ad valorem rate of duty for low-value shipments from China and Hong Kong from 120% to 54% (this is still higher than the originally proposed low-value shipment rate of 30%). However, the May 12 Order retains the alternative “specific duty” option for low-value shipments delivered to the United States from China or Hong Kong via the international postal network at $100 per postal item, though this rate is no longer subject to the automatic increase originally scheduled to go into effect on June 1, 2025.
While the de minimis exclusion has been removed for goods from China and Hong Kong, it is still presently in place for imports that originate in other jurisdictions. However, President Trump has previously directed the Secretary of Commerce to develop mechanisms to collect IEEPA-based duties on low-value shipments from other jurisdictions.
II. Chinese Actions and Consultation Mechanism
China Lowers Tariffs on U.S. Goods to 10%
Pursuant to the Joint Statement, China issued an Announcement of the Customs Tariff Commission of the State Council No. 7 of 2025 on May 13, 2025, local time, that suspends the prior 34% tariff on goods from the United States originally announced on April 4, 2025, for a matching 90 days, while retaining a parallel 10% tariff during the period of the pause.
China to Remove Non-Tariff Barriers
In the Joint Statement and accompanying Fact Sheet, China committed to “adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025.”
By way of background, China announced a range of non-tariff retaliatory measures on April 4, 2025, including the following:
- China’s Ministry of Commerce added 11 U.S. companies to its list of so-called “unreliable entities,” which bars them from engaging in all import and export activities in China and making new investments in China.
- Beijing added 16 U.S. entities to its export control list, which prohibits exports of dual-use items to the listed firms. Nearly all of the firms so targeted operate in the defense and aerospace industries.
- The Ministry of Commerce announced the launch of an anti-dumping probe into imports of certain medical computed tomography tubes from the United States and India.
- Beijing launched an anti-monopoly investigation into the PRC subsidiary of a major U.S. chemical company.
- Beijing announced export controls on seven types of rare earth minerals to the United States, which are vital to end uses ranging from electric cars to defense. Notably, the United States imports its rare earth materials predominantly from China, which produces approximately 90% of the world’s supply.
Parties to Establish a Consultation Mechanism
The Joint Statement also promises that the U.S. and China “will establish a mechanism to continue discussions about economic and trade relations,” and that such discussions may be conducted alternately in China and the United States, or a third country upon agreement of the parties.
Conclusion
These developments involving the critical bilateral trading relationship between the United States and China, a relationship valued at an estimated $582 billion worth of annual goods trade, underscores the ongoing fluidity in global trade policy. We will continue to closely monitor developments related to tariffs and the progress of this and other anticipated trade deals. Gibson Dunn lawyers are prepared to help clients navigate this evolving landscape.
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