After a long-fought tariff war, the US and China seem to have reached an understanding. The two countries’ representatives met at Geneva and decided to lower the tariffs for 90 days. The US agreed to bring down its tariffs from 145% to 30%, while China will now only impose a 10% tariff on US goods instead of the previous 125%.

It’s worth noting that the 30% tariff by the US comprises a 10% universal tariff imposed by Trump on all countries and an additional 20% tariff for failing to curb fentanyl flows by the Chinese.

Trump used the entire tariff weapon to reduce the US’s massive $295.4B trade deficit with China as of 2024. He accused China of taking ‘unfair advantage’ of the US for years. This is also the largest trade deficit the US has had with any trading partner.

Will Lower Tariffs Lead to Lower Prices?

One important thing to understand is that while the tariffs have been reduced, the overall average effective tariff still stands at 17.8%, which is the highest since 1934. Even if you consider the shift in consumption due to the increased tariffs, the average tariff rate would come to 16.4%, the highest since 1937. 

This means that consumers might not actually see lower prices. At most, we might see slower price increases. Companies like Nvidia have already pumped up the prices of their components and products by 10 to 15%. Acer has also announced a 10% price increase as a result of the tariffs.

Also, a lot of products have already been shipped to the US, effective with the 145% tariff rates. Almost 12,000 containers with products for companies like Amazon, Ikea, Tractor Supply, and Home Depot have hit the shores of the US.

The PC hardware inventory turnover is 30-90 days on average, which means that the price changes may be deferred by almost six weeks. So, it might take some time for the reduced tariffs to come into effect. Even then, you can expect the prices to be more than in the pre-tariff era.

This will also depend on the time required to get rid of the high-tariffed inventory sitting on the US shelves. Fast-moving consumer goods usually have a faster inventory turnover, which means you can expect a price drop soon. However, high-value products like PCs may sit on the shelves for a good couple of months.

The expectation of reduced prices is also based on the assumption that no further escalations will occur. This is only a 90-day pause, and the tariff scenario remains somewhat uncertain.

The overall average price levels are expected to increase by 1.7% in the short run. This means that the average American household may lose $2,800 in purchasing power when compared to 2024. Even after consumption adjustment, the loss stands at around $2,300.

Production Moving Back to the US?

In the wake of increasing tariffs, several companies have announced moving production back to the US to save costs. For instance, Nvidia said that it will move $500 billion worth of AI server supply chain to the US.

Along with partners like TSMC, Foxconn, Wistron, Amkor, and SPIL, Nvidia plans to set up AI servers and server assembly plants in the US.

Apple, too, has announced a $500 billion investment in the U.S., including a Houston manufacturing facility. Trump even went on to say that he talked with Tim Cook after the tariff reduction announcement, and ‘he’s going to be building a lot of plants in the United States for Apple.’

Trump also hinted that the actual value of these investments may be way more than $500 billion.

It’s worth noting that these announcements were made when the tariffs were as high as 145%. In such a situation, it wasn’t possible for these companies to shift the entire increase in cost to the customers through price hikes. For instance, Apple said that it would lose $900 million as a result of the tariffs.

However, now the situation has eased off massively, with the tariffs standing at just 30%. So, do these manufacturers still have the motivation to shift production units to domestic shores?

Sure, 30% is still nothing to sniff at, but a part of this cost can be passed on to the customers while the rest can be recovered through better production planning and cost-cutting.

Bottom Line

All in all, this seems to be a Catch-22 situation for Trump. The entire point of imposing heavy tariffs was to lower imports and encourage domestic production. While tariffs as high as 145% met these purposes, a 30% tariff may not deter the US manufacturers.

However, increasing tariffs beyond a certain point would essentially bring trading to a halt between the US and China, which doesn’t serve the purpose either.

So, it now all comes down to how well Trump can negotiate with the US companies. His talks with Cook seem to be reassuring as of now. We’ll know in due course whether production sees a ‘differentiable’ shift in the next few months.