U.S. and China Agree on Framework for a New Trade Deal

What Happened?

Following several days of bilateral negotiations in London, the U.S. and China have agreed upon a framework for implementing the terms of a new trade deal. U.S. Commerce Secretary Howard Lutnick said, ‘We have reached a framework to implement the Geneva consensus.’

China’s Vice-Premier He Lifeng said, ‘As a next step, the two sides should follow the important consensus and requirements reached by the two heads of state on the phone call.’ President Trump posted on social media that ‘the deal is done’ but President Xi Jinping of China has yet to make a similar announcement.

Why it Matters

Following the announcement of the new framework for trade between the U.S. and China, American stocks were up, and treasury yields were slightly down. According to a White House spokesman, the new agreement will allow the U.S. to charge a 55% tariff on imported Chinese goods, including a 10% baseline ‘reciprocal’ tariff, a 20% tariff for fentanyl trafficking and a 25% tariff reflecting pre-existing tariffs. China would charge a 10% tariff on U.S. imports. 

Despite the news of the deal, Chinese and U.S. officials continued to accuse each other of violations. U.S. officials accused China of stalling exports of rare earth magnets crucial for auto and defense sectors, while Beijing objected to Washington’s move to impose new curbs on chip design software. 

The U.S. and China represent the two largest economies in the world, and last year trade between them was valued at approximately 580 billion dollars. While the recent tariffs themselves have roiled world markets, the constant changing of the tariffs caused even more market volatility. Markets can adapt to more tariffs or no tariffs, but constantly changing tariffs make it hard for firms to develop and implement effective strategies.

Both the U.S. and China have felt the impact of the recent trade war. In the U.S., shipping to the port of Los Angeles, the largest in the country, was down to five ships a day as of June 10^th, 2025. Meanwhile Goldman Sachs Research estimated the total increase in the U.S. tariff rate on Chinese goods since President Trump took office would, if kept in place, decrease the level of China’s GDP by 2.6 percentage points. With about 2.2 percentage points of that impact occurring in 2025.

Beijing has not given any indications when or if President Jinping plans to make a decision on the London consensus. But given the statements by Chinese officials who took part in the talks, it seems likely China will go along with the new deal.

How it Affects You

Ending the trade war will be beneficial for the U.S. and China by bringing much needed stability to global markets. Consumers and businesses are likely to see improved economic conditions if the trade deal remains intact.