With sharp reduction in China tariffs, Trump is trying to get back the economy he inherited.

He might pull it off, but why go there in the first place?

In keeping with their efforts to find offramps from the President’s misguided trade policies, the Trump administration has announced a sharp, 90-day reduction in their 145% China tariffs.

From the NYT:

Under the agreement, the United States would reduce the tariff on Chinese imports to 30 percent from its current 145 percent, while China would lower its import duty on American goods to 10 percent from 125 percent.

This is, as noted, a 90-day agreement during which further talks will transpire. Market futures are up by over 3% for the S&P this morning and dollar indexes are up about a percent. According to a Goldman Sachs note this morning:

Anticipation for a relaxation in US-China tariff rates has been building over recent days, but based on our client conversations, these new rates are far below what most investors had expected, and are also considerably lower than the figures floated by the US administration in recent days (including by Trump on Friday).

The new China tariff is still, at 30% (10% baseline plus 20% fentanyl-punitive measures), elevated relative to pre-trade-war levels. And uncertainty is likely remain elevated given that this is a pause, not a stop. Many U.S. importers may race to get goods in before the reset resets again, which could add to the ongoing pressure on supply chains and costs (this link is to a new paper showing tariff-induced inflationary pressures are already in the price data).

So, they can dial-back all they want but their own-goal kicks will still be responsible for economic chaos, disruption, and, I suspect, weaker hard data going forward.

But I’ve long argued that there’s time to reverse course and avoid a downturn, and perhaps they’ll be able to do so. That would be my current baseline.

But that does raise the ancient question: what in the name of Keynes are these people doing??!! This is a patently and transparently ridiculous example of the old Trumpian play of starting a fire so you can put it out. But in this case, their tinder is the global trading system and livelihoods of millions of Americans and businesses that depend on imports.

So, what are they up to? Simple, they’re trying to get back, as quickly as possible, to the good economy they inherited. Their false narrative required them to pretend that the economy they took over from the Biden administration was terrible, where a checked-out president allowed every country, even little islands with no inhabitants, to rip us off. This, in turn, required them to hit the ground with shock-and-awe in the form of initiating a trade war with every trading partner, especially China.

What they didn’t foresee, though it should have been obvious and everyone was screaming about it (see market reactions, currency moves, heightened recession probabilities), was that these actions would threaten an economy that was comfortably firing on all cylinders, with a tight labor market, solid consumer spending, healthy investment, inflation drifting back down to target, and improving animal spirits.

That’s what they actually inherited, but when your modus operandi is to create your own reality, you’re going to miss that.

So now they’re trying to get us back to the economy they inherited by taking down the destructive measures that their invented reality required them to implement.

As I said, it’s probably not too late to do so, though damage has been done. But if you’re not asking yourself why we had to break something—something very big and very important—that wasn’t broken in order to maybe, sort of, partially fix it, then you’re paying seriously inadequate attention to what these folks are truly up to.