Business News: 3 Reasons the US-China Trade Thaw Won't Last – 2 Threats That Will Crash the Market in May
You saw the headlines. US and China agree to drastically roll back tariffs. Global markets surged. Investors cheered. You thought: maybe the trade war is ending.
It's not.
The United States and China agreed to drastically roll back tariffs on each other's goods for an initial 90-day period, in a surprise breakthrough that de-escalated a punishing trade war and buoyed global markets.
The announcement came in a joint statement after a weekend of marathon trade negotiations in Geneva. Both sides touted "substantial progress." Dow futures jumped more than 2%, while S&P futures rose nearly 3%. Asian markets rallied.
But here's what the headlines didn't tell you.
Reason #1 — The Deal Is Only 90 Days
The mutual tariff revisions will be imposed by May 14. But the deal lasts only 90 days.
That effectively means the US will temporarily lower its overall tariffs on Chinese goods from 145% to 30%, while China will cut its levies on American imports from 125% to 10%.
The word "temporarily" is doing heavy lifting here. After 90 days, tariffs can snap back to their previous punishing levels if negotiations stall.
The two sides have agreed to establish "a mechanism to continue discussions about economic and trade relations." But mechanisms are not binding agreements.
Reason #2 — Core Tariffs Remain
Trump's 20% fentanyl-related levies on China, imposed in February and March, will stay.
That means even at the lowest point of the détente, Chinese goods will face 20% tariffs. American goods in China will still face tariffs above 10% (the exact number is still being negotiated).
The "dramatic rollback" is dramatic only compared to the 145% peak. Compared to pre-trade-war levels (0-8%), it's still a heavy tax on global commerce.
Reason #3 — The Economic Damaged Has Already Been Done
The trade war has already damaged both economies.
America's gross domestic product showed its first quarterly contraction since early 2022, as importers raced to bring in goods before punishing tariff rates kicked in.
As for China, its exports to the US fell sharply last month, impacting the country's enormous manufacturing industry. Chinese factory activity contracted at its fastest pace in 16 months in April, adding urgency to Beijing's efforts to roll out fresh economic stimulus.
A 90-day pause does not reverse years of supply chain disruption. Companies that moved factories out of China will not move them back. Companies that stopped buying from the US will not resume overnight.
The damage is structural. A 90-day clock doesn't fix that.
Threat #1 — The Fed's May 15 Meeting (Market Time Bomb)
While investors cheered the trade détente, a larger threat was ignored: the Federal Reserve.
The stock market is facing a historic Federal Reserve double whammy on May 15. Fed chair nominee Kevin Warsh aims to change the central bank's narrative — and that's not good news for the stock market. Additionally, Warsh will presumably be taking over a historically divided Federal Open Market Committee (FOMC).
An expensive stock market that had been pricing in several rate cuts may be facing a worst-case scenario on May 15. Markets no longer expect rate cuts in 2026. Instead, they are pricing in a new wave of hikes by early 2027.
If Warsh signals a hawkish tilt on May 15, the market rally will reverse violently.
Threat #2 — S&P 500 Correction of 30% Predicted
Legendary economist Gary Shilling has made shocking predictions about the US stock market.
Shilling said that stocks may get corrected because of inflated valuations. S&P 500 may plunge 30 per cent.
Currently, the S&P 500 is down 71.47 points, or 1 per cent for the week. The Dow Jones is down 328.58 points, or 0.7 per cent. The Nasdaq is down 357.47 points, or 1.5 per cent. The Russell 2000 is down 26.12 points, or 1 per cent for the week.
Shilling's prediction of a 30% further drop would erase trillions in market value and push the US economy into a confirmed recession.
What You Should Do — How to Navigate May's Market Threats
Step 1: Do not chase the trade-deal rally. It is a 90-day sugar high, not a fundamental recovery.
Step 2: Mark May 15 on your calendar. The Fed's double whammy (new chair nomination + divided FOMC) will set the tone for the next 6 months.
Step 3: Reduce exposure to high-multiple growth stocks — they are most vulnerable to both trade war disruptions and higher interest rates.
Step 4: Look for undervalued industrial and manufacturing stocks that may benefit from the re-shoring trend (whether trade war continues or not).
Step 5: Hold cash. Volatility in late May will be extreme.
REAL EXAMPLE — Why Short-Term Rallies Fail
During previous US-China trade pauses (2019, 2020), markets rallied on optimism, then sold off when negotiations hit new obstacles. The pattern appears to be repeating.
This deal is 90 days. The day before the deadline, markets will panic again — unless a permanent framework is agreed.
And a permanent framework is nowhere in sight.
Your Turn
Do you think the US-China trade thaw will lead to a permanent resolution, or is it a temporary reprieve before new tariffs in August?
Comment: "The trade war will resume in 90 days. I am using this rally to reduce my stock exposure."
US-China tariff timeline (2020-2026) — 1200×800
Infographic — "May 15 Fed double whammy explained" — 1200×800