US–China trade developments bring short-term tariff relief

What happened?

President Trump announced a trade agreement with China on May 12, marking a major step in de-escalating the ongoing trade tensions between the two nations. As part of this agreement, the United States will remove the additional tariffs it imposed on China on April 8 and April 9, but will retain all tariffs imposed on China prior to April 2, including Section 301 tariffs, Section 232 tariffs (e.g., steel, aluminum, automobiles, and auto parts), tariffs imposed in response to the fentanyl national emergency invoked pursuant to the International Emergency Economic Powers Act, and Most Favored Nation tariffs. As a result, the United States will reduce tariffs on many Chinese goods from a peak rate of 145% to a baseline of 10%, with an additional 20% layered tariff, effectively bringing the additional tariffs to 30% during a 90-day pause period. If an agreement on future steps is not reached before the 90-day pause, the baseline 10% rate will increase to 34% to become an effective rate increase of 54% for certain products.

In turn, China will lower its tariffs on American goods to 10% and agreed to eliminate recent retaliatory tariffs and non-tariff measures. The United States and China implemented these actions on May 14. Both countries agreed to establish a formal mechanism for ongoing trade discussions. Additionally, the agreement includes joint efforts to curb the flow of fentanyl and its chemical precursors from China to North America (See the White House fact sheet and US-China joint statement).

The newly announced agreement directly impacts supply chain costs, market access, and regulatory predictability. By reducing US tariffs on certain Chinese goods to as low as 30% and reducing China’s tariffs on American products to 10%, the agreement alleviates a significant financial burden on companies operating cross-border, especially in manufacturing, technology, and consumer goods. The elimination of Chinese retaliatory and non-tariff barriers offers US companies expanded opportunities in the Chinese market, while the 90-day tariff pause and formal dialogue mechanism provide a window of stability for business planning. Additionally, the agreement's emphasis on enhanced customs enforcement and fentanyl control may signal broader regulatory scrutiny, prompting companies to reassess compliance and risk mitigation strategies.

With temporary tariff reductions now in effect — lowering US duties on Chinese goods from 145% to 30% and China's tariffs on US products from 125% to 10% — companies should assess the impact on their supply chains and cost structures and explore opportunities to enhance sourcing and production strategies. The 90-day pause offers short-term relief but retains elevated tariff levels, making it critical to monitor ongoing negotiations and prepare for future policy changes. Companies also should evaluate compliance processes in light of increased customs enforcement and new regulatory focus on controlled substances such as fentanyl. Proactive planning and internal coordination will be key to navigating the evolving landscape and maintaining alignment with US trade policy developments.

For more details, read the full Tax Insight linked below.