Fidelity: The temporary reduction of tariffs between China and the U.S. is an encouraging signal that helps restore market confidence

The Zhitong Finance APP learned that China and the United States issued a joint statement announcing a temporary reduction in tariffs. The United States will lower tariffs on goods from mainland China from 145% to 30% within 90 days, while mainland China will simultaneously reduce tariffs on U.S. imports from 125% to 10%. Stuart Rumble, Investment Director for the Asia-Pacific region at Fidelity International, stated that this news has led to a positive response in the stock market, with both mainland and Hong Kong stock markets reacting favorably. This short-term relief is an encouraging signal for the market and helps restore market confidence.

Although the overall reduction in tariffs is significant, the duration of the cuts is limited. However, current market sentiment and local supportive policies may be more important than the substantive content of the agreement. Investors can gain several insights from this statement.

First, although it is a temporary tax reduction, it reflects a significant shift in the overall effective tax burden. The high tariff regime between China and the United States has caused substantial damage, reducing bilateral trade between the two major economies and increasing the risk of a general slowdown in the global economy. Although both economies are not yet on the brink of collapse, a significant reduction in overall tariffs will help alleviate this risk. The U.S. government may continue to support demand through extended tax cuts and other fiscal measures aimed at supporting household spending. Mainland China has been working for years to reduce its dependence on exports to the United States, preparing for a new round of trade tensions while retaining the ability to expand domestic stimulus measures. These developments, along with reduced trade barriers, should provide support to the stock and credit markets.

Second, even with tariff reductions, global trade flows are changing. The decline in direct trade between China and the United States has led to an increasing amount of trade being rerouted through Southeast Asia and other so-called third countries. Tariff differences still exist and will continue to influence trade flows based on relative competitiveness, infrastructure capabilities, and national policy responses. Companies need time to adjust their supply chains and logistics, and these structural changes are very important for investors considering allocating funds in Asia.

Finally, although this development is encouraging, investors should view it as a relaxation of U.S.-China relations amid broader and long-term tensions, while moving towards a greater degree of self-sufficiency