The United States expects to reduce the high tariffs imposed on China soon, as the International Monetary Fund forecasts a sharp slowdown in economic growth

The US White House says it expects the tariffs imposed on China will soon be lowered "substantially" from the 145% base rate which has been in place since April 9. 

It comes after the International Monetary Fund forecast Donald Trump’s trade policies would cut almost a percentage point off economic growth globally and in the United States.

Global growth would be just 2.8% in 2025—instead of the 3.3% forecast prior to the tariff announcements—which is well below the pre-pandemic average of 3.7%. Economic growth in the US was downgraded from 2.7% to just 1.8%.

At a private investor event on Wednesday (NZT), Treasury secretary Scott Bessent said the current situation was unsustainable and both sides would need to deescalate. 

The US and China would be able to reach a deal in the “very near future” and lift what had effectively become an “embargo” on trade between the two countries. 

These comments were later echoed by President Trump who said he expected to make a deal with Chinese leader Xi Jinping but also suggested he may lower tariffs unilaterally.

“145% is very high, and it won't be that high … We were talking about fentanyl, where, you know, various elements built it up to 145%. It won't be anywhere near that high. It’ll come down substantially, but it won't be zero,” Trump told reporters.

“My relationship with President Xi is great … and I think we'll make a deal with China. If we don't make a deal, we'll set it. We'll just set the number,” he said. 

Last week, Politico reported that Trump has been insisting on direct talks with Xi, which the Chinese side are unwilling to risk after the public embarrassment of Volodymyr Zelenskyy.

US stock futures rose after the press conference, although some analysts attributed this to Trump saying he doesn’t plan to fire Federal Reserve Chair Jerome Powell. There had been speculation the central banker might be ousted, which would fuel further chaos in markets.

The S&P 500 is down almost 10% year-to-date, and 13% from its recent high. The US dollar is down 9.4% relative to its trading partners, and 10-year bond yields are trading near 4.4% — that’s down slightly this year, but up 40 basis points since the big tariff announcement.

New Zealand markets have also been under pressure. The benchmark stock index is down 9.7% this year, the two year Government bond has dropped 40 basis points to 3.2%, and the NZ dollar has risen approximately 4% against its trading partners.

Historic tariffs

The IMF said the new measures and retaliations had brought effective tariff rates to “levels not seen in a century”.

“This on its own is a major negative shock to growth. The unpredictability with which these measures have been unfolding also has a negative impact on economic activity and the outlook and, at the same time, makes it more difficult than usual to make assumptions that would constitute a basis for an internally consistent and timely set of projections.” 

The agency published what it called a ‘reference forecast’ based on the information that was available as of April 4, but also discussed alternative scenarios such as the 90-day pause.

Overall the impacts of the tariff policy as first announced and as it currently sits on global economic growth were broadly similar. However, the current settings focused a larger share of the costs on the US and Chinese economies.

“Further, the losses in China and the United States would become larger in 2026 and beyond, while the gains in other regions would fade, leading to weaker global outcomes than the reference forecast.”

The forecast global growth rate of just 2.8% is the lowest since the pandemic in 2020 and the second lowest since the Global Financial Crisis in 2009. 

“On the upside, a deescalation from current tariff rates and new agreements providing clarity and stability in trade policies could lift global growth,” the IMF said in the report. 

Kiwis in the states

Meanwhile, businesses in New Zealand and the rest of the world are unsure which scenario to rely on for future planning. This is likely to lead to deferred investment and slower growth. 

Trump’s chaotic policies have been difficult for decision makers to follow. Last week, one Kiwi exporter even said it was unsure whether its product was included in an exemption or not.

Mainfreight boss Don Braid said this was true of customers in Europe, some of whom did not initially understand what tariffs would be applied. Now many were using the 90-day window to ship stock into the US, while planning to then pivot into other markets.  

Other NZX-listed companies said they are playing for time. Skellerup, a rubber manufacturer, said it had moved extra inventory of China-made products into the US market ahead of the tariffs.

Chief executive Graham Leaming told RNZ this “wasn’t a long term solution” but it bought the company some time while it considered lifting prices or relocating its manufacturing.

Tourism Holdings chief executive Grant Webster told Newstalk ZB that the campervan rental company would pull back on US investment, due to a collapse in European inbound travel. 

“We are one very small company in USA terms … [but] when you talk about possible recession in the US and, we are one small example, it has to be felt more broadly across the economy,” he said. 

The company’s share price has fallen more than 20% since the tariff announcement and is down almost 30% year-to-date. Skellerup’s share price dropped 16% and is down 21% this year. 

AI, silver lining? 

Even Infratil, an infrastructure investment entity managed by Morrison, has been caught in the market selloff and trade disruptions despite not being directly exposed to tariffs.

Shares in the company initially fell 8% after the Trump announcement but quickly rebounded and are now up 1.2% — although it is still down year-to-date, likely due to losses in AI stocks.

Paul Newfield, the chief executive of Morrison, said infrastructure investments were less exposed to instability than many other assets but no portfolio was immune to the “tectonic shifts in the global trade system”. 

He said his teams were watching for risks such as export restrictions on batteries limiting supply to its US renewable energy projects, or how vehicle tariffs might hit demand for the European EV charging network.

But they were also looking for opportunities in the chaos. NZ was one of five countries in Asia Pacific which would be allowed to access the highest capability AI computer chips under a draft export control proposal.

“Of those, Australia and New Zealand have the best capacity to provide the land and renewable energy that hyperscale data centres require,” Newfield said. 

Infratil already owns about 48% of CDC Data Centres, which builds and runs high-security data centers for cloud computing and government services. The growing AI industry relies on these kinds of centres for access to data and processing power.

The IMF report noted that some countries could benefit from trade diversion—while China and US embargoes are in place—but any positive effect would likely be short-lived.