US-UK trade agreement: A step forward
In the past week, there has been the first successful negotiation between the US and a targeted trade partner. The US and the UK agreed to an alternative tariff structure that includes easier access to the UK market for US exporters. The US-UK trade agreement is a clear indication of the potential outcomes in US negotiations with other countries subject to reciprocal tariffs. Notably, UK steel and aluminium will be exempt from the Section 232 25% tariff, and the Section 232 car tariff will be lowered from 25% to 10% for the first 100,000 vehicles. We expect to see further announcements of successful negotiations between the US and its trading partners. Tariffs may be agreed at much lower levels than originally proposed, but we expect the 10% universal tariff to be maintained as a minimum. As well as the inclusion of increased access to partner markets for US exporters.
US-China trade war de-escalation
Of significantly greater importance to both the global economy and battery raw material markets, the US and China agreed to de-escalate their trade war on Monday, May 12. Both the US and China agreed to lower reciprocal tariffs to 10% for 90 days during further trade negotiations. The US tariff rate on China’s imports will be 30%. It will comprise the two 10% emergency tariffs and the 10% universal tariff. The new 30% tariff on imports from China is significantly lower than the previous 145% tariff rate. Numerous goods from China are subject to higher tariffs. However, including the earlier Section 301 tariffs on items, including most battery raw materials. As well as Section 232 import tariffs of 25% on steel, aluminium and automobiles.
China’s tariff reductions and export restrictions
China agreed to lower its import tariffs on US goods to 10% from the previous 125% retaliatory level. China also said it would potentially ease export restrictions on critical minerals. This includes graphite and other rare earth minerals used in battery and high-tech sectors. Chinese export controls on graphite have had little actual impact on trade flow volumes. They are, however, a credible threat to overseas consumers.
Impact of the US-China trade war on trade flows
The US-China trade war prompted a rush of imports by US businesses and consumers in the first quarter of 2025. The dramatic increase in US net exports pushed US gross domestic product into contractionary territory. The imposition of 145% tariffs on Chinese imports, in addition to any Section 301 or 232 tariffs, and China’s retaliatory tariffs of 125% prompted a near stoppage of US-China trade flows in recent weeks. The Section 232 tariffs on steel, aluminium and autos have also sharply reduced trade flows to the US from other countries as well.
Observations of trade slowdown
As an anecdotal observation, Fastmarkets noted a dramatic decline in the number of container ships, general cargo ships and roll on-roll off (RoRo) car ships in the Chesapeake Bay enroute to the Port of Baltimore. This reflects the notable slowdown in trade for the second quarter of 2025. It is common to see 10-15 ships awaiting entry to the port at any given time. But since the start of May, there have been no ships waiting, only the occasional container or cargo ship moving in or out of the area. And no RoRo car ships.
Anticipated effects of the 90-day tariff pause
With the 90-day pause now in effect on imports from China, we would expect to see additional purchasing by US consumers. Not to mention businesses looking to build inventories and beat the next round of tariffs and take advantage of temporarily reduced import costs. US President Donald Trump has indicated that even if a trade agreement with China cannot be reached by August 12, tariffs on China will go back up. But not to the previous 145% reciprocal tariff level.
Decline in US electric vehicle sales
Turbulence and uncertainty in the US government, including Tesla chief executive officer Elon Musk’s role in cutting government jobs, has been reflected in a decline in US electric vehicle (EV) sales in April. US EV sales fell 5% year on year in April. This is only the third time monthly EV sales have declined since 2021. Declines were evident across all brands. But the backlash from Musk’s actions with the US Department of Government Efficiency hit Tesla’s sales the hardest. Tesla sales were down by nearly 13% in April. Tesla typically represents approximately half of US EV sales.
Factors contributing to EV sales decline
Sales declines reflected the knock-on effects of an earlier boost in sales as buyers sought to increase purchases in advance of an expected elimination of the $7,500 Internal Revenue Service 30D tax credit as well as a reduction in dealer incentives and leasing deals. The 30D tax credit has not yet been eliminated. While its cancellation is expected, it will remain in place until Congress passes new legislation that includes the removal of the EV tax credit. Fastmarkets expects US EV sales to struggle through 2025. This largely reflects consumer uncertainty regarding tax credits and import tariffs.
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