Over the past month or so, investors and companies have been bracing for a full-scale economic decoupling between the world’s two largest economies – China and the US – all thanks to Trump. In fact, it got so bad, many companies scrambled to import goods before tariffs kicked in. They also started to reroute supply chains. And of course, recession fears exploded.But this trade war may be behind us now…
After crucial trade talks in Switzerland, the US and China have agreed to a “trade war truce”.
Here’s what you need to know…
A 90-day trade war truce begins…
The two sides agreed to a 90-day truce during which full negotiations will continue. In that time, the US will slash its reciprocal tariff rate on Chinese imports from 125% down to 10%.
Yes, some sector-specific tariffs remain (autos, steel, aluminium). Nevertheless, the truce means the average effective US tariff rate on Chinese goods drops from 115% to 40%.
That’s a monumental shift and in my view, signals the worst of the trade war is likely behind us. While trade deals with the UK, Japan, and India matter, the China deal was always the crown jewel for the US and global economy.
Zooming out further: The truce also means the overall average effective US tariff rate on all imports will drop from 23% to 13%. And that’s arguably even more important.
Why?
Because it might just save the US from entering a major recession!
You see, tariffs are essentially a tax. And like any tax, they slow the economy.
As I mentioned in previous MoneyMorning articles, the US Federal Reserve estimated that every one-point rise in the average US tariff rate impacts GDP by about 0.14%.
An average tariff rate of 30% would lead to a 3.8% drag on America’s GDP – enough to negate any positive effects from Trump’s expected tax cuts, deregulation, or even interest rate cuts.
Now with the average tariff rate down to 13%, the impact to GDP is roughly 1.4%. That’s much more manageable.
Importantly, Trump’s tax cuts and deregulation policies may just be enough growth firepower to largely (if not entirely) offset the 1.4% GDP-impact.
Add in potential rate cuts too and we could see an economic boom!
And that means, more investor certainty, business clarity, less recession fears and growth. It also means…
A stock market boom lies ahead – especially in Tech…
Why?
Tech companies have been among the most vulnerable to trade tensions. Because their supply chains, their customers, and their growth are global.
And nothing crushes global growth like a trade war between economic giants.
Now that trade tensions have waned, tech stocks have started to soar again – led by AI players.
After all, the AI boom is still very much intact. Spending is still accelerating. Data centres are still being built. Chips are still in high demand. And several major deals between AI giants and countries are forging ahead.
With AI stocks sitting on attractive valuations, there are huge money-making opportunities up for grabs right now. If you’re not yet invested in the AI sector, then make sure you get my latest issue of South African Investor out now.
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