Opinion Tariff Tracker, June 14: US-China talks restore May 12 status, World Bank forecasts slowdown

The event is estimated to cost between $25 million and $45 million, and feature over 6,000 soldiers, 128 army tanks, armoured personnel carriers and artillery, as well as an aerial display featuring 62 aircraft, according to AP reporting.

Traditionally, US military parades have been conducted at the end of a war to celebrate victory or to welcome the returning troops. The last military parade took place in 1991 at the end of the Gulf War, and was a less contentious event than Saturday’s festivities.

The timing is significant as well. Over the last week, the Trump administration has initiated a new phase of its sweeping crackdown against illegal immigration. Raids by the Immigration and Customs Enforcement (ICE) in the garment district in Los Angeles resulted in a flurry of arrests, triggering protests by residents. As the standoff escalated, the US President fanned the fire further, deploying the National Guard and Marines in the city.

These moves are unprecedented – the last time a US president deployed the National Guard bypassing a state governor’s mandate, it was Lyndon B Johnson in 1965 seeking to protect Civil Rights activists marching from Selma to Montgomery in Alabama.

The use of the National Guard, typically a decision exercised by the state, was challenged in court by California Governor Gavin Newsom, and a federal court ruled in his favour on Friday, ordering control of the troops to be restored to Newsom. However, this order was almost immediately stayed following an appeal by the Trump administration.

US-China: Status quo ante restored… for now

The latest round of trade talks between the US and China this week reportedly resulted in a handshake agreement between the officials of the two countries on Wednesday (June 11) in London. In a social media post, Trump wrote, “OUR DEAL WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI (Jinping) AND ME.”

While details of the agreement are still to be revealed, reports suggest a return to the terms agreed by both countries on May 12 in Geneva. You will recall that the US and China agreed to lower their tariffs on each other by 115%, reducing US tariffs on China to 30% and Chinese tariffs to 10%.

The escalating trade war between the US and China began in February, with Trump announcing a 10% fentanyl tariff on China along with tariffs on Canada and Mexico, which was doubled to 20% in March. Unlike other nations, China did not immediately seek talks with the US president, and instead, announced countermeasures targeting Liquefied Natural Gas, coal, and farm machinery, among other products. Trump’s Liberation Day tariff announcements singled out China, and in the days that followed, saw US tariffs on Chinese products reach 145%, while China charged 125% tariffs.

China also decided to hit the US (and by extension the rest of the world) where it hurts most, by announcing an elaborate licensing system to restrict rare earths exports, citing a national security risk. We explained why this move is significant in the Tariff Tracker on June 2.

The May 12 agreement had extracted an assurance from the Chinese side to resume rare earths exports. However, the Trump administration accused China of acting slowly in this regard and moved to retaliate, restricting access to a range of software, products, chemicals and technologies critical to the Chinese manufacture of advanced chips and jet engines. Ultimately the a detente became possible following a phone call between Trump and Chinese President Xi Jinping last Thursday (June 5) to iron out the differences.

For now, the talks have resulted in one certain outcome – that American restrictions on exports of tech and ethane gas to China, as well as visa restrictions targeting Chinese students, would be removed. In exchange, China has agreed to grant rare earths licences to US firms, according to US Commerce Secretary Howard Lutnick. However, these licences would only be valid for 6 months, according to a report in The Wall Street Journal citing people familiar with the matter.

US Appeals court permits tariffs to continue… for now

On May 29, the US Court of Appeals for the Federal Circuit stayed an order by the US Court for International Trade, which had ruled Trump’s tariffs were illegal under the International Emergency Economic Powers Act, 1977 (IEEPA). These pertained to two sets of tariffs – the Liberation Day tariffs, which stipulated a 10% baseline tariff for all countries and the country-specific tariffs, as well as the fentanyl tariffs on Mexico, Canada and China.

On Tuesday (June 10), the appeals court ruled that the tariffs could continue even as legal challenges against them were being heard. However, the court allowed for the cases challenging the tariffs to be expedited, and that the case will be heard on a sped-up basis by the full panel of judges at the court.

“The court also concludes that these cases present issues of exceptional importance warranting expedited en banc consideration of the merits in the first instance,” the order said.

The May 29 ruling had said that Trump had exceeded his powers as president in using the emergency powers under the IEEPA to impose tariffs on all countries, using the US’s trade deficit as a rationale. In the Tariff Tracker on May 29, we explained how emergency laws have been used in the US, and how the federal court ruled thus.

World Bank forecasts slower growth following tariffs

In its biannual Global Economic Prospects report, the World Bank forecasted a global economic slowdown due to “substantial headwinds, emanating largely from an increase in trade tensions and heightened global policy uncertainty.” However, this would likely stop short of a full-blown recession.

The World Bank also announced that the fallout of Trump’s tariffs could lead to the weakest decade of economic growth since the 1960s, with global output expected to slow to 2.3% in 2025 from 2.8% last year. The decline would be most acutely felt by the US, with growth estimated to decline to 1.4% from 2.8% last year.

“The rise in trade barriers, heightened uncertainty and the spike in financial market volatility are set to weigh on private consumption, international trade and investment,” the report said. It also anticipated a decline in investment “due to record-high uncertainty, the rise in financing costs, and reduced domestic and external demand.”

The World Bank also said that if the tariff rates were to be halved, global economic growth could rise by 0.2% over the next two years.

Emerging markets and developing economies would continue to outperform developed nations this year too, but the extent of growth would not be sufficient to narrow income gaps with richer countries, boost job creation, and reduce extreme poverty.

India is projected to grow by 6.3% over 2025-26, the fastest-growing large economy. In the face of global uncertainty, investments and exports would remain subdued. The number aligns with the IMF’s forecast of 6.2% over the coming year in its World Economic Outlook report.