China-US Reach 90-Day Tax Reduction Agreement: Toy Industry Benefits, Trump's New Drug Pricing Policy Gains Attention
On May 12, 2025, the US and China reached a 90-day "tariff reduction agreement" in Geneva, where US tariffs on Chinese goods were reduced from 145% to 30%, and Chinese tariffs on US goods were reduced from 125% to 10%. This agreement temporarily halts the trade war and is beneficial to the US toy industry, though the risk of price fluctuations still exists. On the same day, Trump signed an executive order to promote the "most favored nation pricing" policy for pharmaceuticals, mandating that pharmaceutical companies reduce US drug prices to align with those in other developed nations, which drew significant attention from the pharmaceutical industry.
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05/13 15:24
China-US Reach 90-Day Tax Reduction Agreement: Toy Industry Benefits, Trump's New Drug Pricing Policy Gains Attention
On May 12, 2025, the US and China reached a 90-day "tariff reduction agreement" in Geneva, where US tariffs on Chinese goods were reduced from 145% to 30%, and Chinese tariffs on US goods were reduced from 125% to 10%. This agreement temporarily halts the trade war and is beneficial to the US toy industry, though the risk of price fluctuations still exists. On the same day, Trump signed an executive order to promote the "most favored nation pricing" policy for pharmaceuticals, mandating that pharmaceutical companies reduce US drug prices to align with those in other developed nations, which drew significant attention from the pharmaceutical industry.
Details and Background of the US-China Tariff Agreement
According to a joint statement released by both parties, the US and Chinese governments announced on May 12, following high-level economic and trade talks held in Geneva from May 10 to 11, that they had reached an agreement to temporarily reduce most of the additional tariffs imposed on each other for 90 days starting May 14. The US will lower the "reciprocal tariffs" on Chinese goods from 125% to 10%, and with the existing 20% tariff on fentanyl, the total tariff on fentanyl will drop to 30%. China will reduce its retaliatory tariffs from 125% to 10%.
This agreement does not include tariffs previously imposed by the US on specific industries such as steel and automobiles, nor does it remove the additional tariffs on fentanyl trade. The Trump administration stated that if there is no progress in negotiations within 90 days, tariffs may be raised again, but they will not return to the peak of 145%.
Toy Industry Reaction: From Freeze to Recovery
For the US toy industry, which has long relied on Chinese manufacturing, this agreement brings a noticeable positive effect. The stock prices of major toy companies like Hasbro and Mattel surged on the day the agreement was announced, reflecting market optimism about the recovery of the supply chain. According to a Bank of America report, about 40% of these companies' products come from China, and tariff pressures had once forced them to adjust financial forecasts and production strategies.
Jay Foreman, CEO of US toy manufacturer "Basic Fun," described it as "Christmas has been saved." He noted that under a 145% tariff, companies were almost unable to ship, akin to an embargo; while a 30% tariff still poses pressure, it at least allows goods to circulate. However, he also admitted that companies still need to bear an additional cost of 10% to 15% due to tariffs, which may eventually be passed on to consumers, leading to price increases.
In China, some toy factories have also quickly resumed production. The head of Guanghua Toy Factory stated that layoffs had reached 50% in the past month due to high tariffs, but now they need to expedite production to meet export demand. However, industry players generally feel uneasy about the future, believing that the uncertainty of tariff policies makes long-term planning difficult.
Potential Impact of Tariff Reduction on Prices
Although the tariff reduction provides short-term relief for businesses, the risk of price increases still looms. Logistics companies point out that a 30% tariff is still a heavy burden for consumer goods companies with gross margins of only 40% to 50%. Combined with rising shipping costs and supply chain fluctuations, this could ultimately drive up retail prices.
BBC reported that some US retailers had suspended product pricing and promotional activities during the tariff surge, expressing concern about the upcoming holiday sales season. Although tariffs are temporarily eased, the time-limited nature of the agreement leaves the market shrouded in uncertainty.
Trump's Drug Price Policy: Promoting "Most Favored Nation Pricing"
On the same day as the tariff agreement, President Trump signed an executive order promoting the "Most Favored Nation Pricing" policy, requiring pharmaceutical companies to lower US prescription drug prices to the same level as other developed countries within 180 days. If the target is not met, the government will take further measures, including opening up drug imports and restricting pharmaceutical company operations.
Trump stated at a press conference, "We will no longer let Americans be taken advantage of." He pointed out that US drug prices are typically nearly three times higher than in other countries, and this policy will reduce drug prices by 59% to 90%. He also criticized pharmaceutical companies for passing research and development costs onto American consumers, describing it as unfair treatment to the US.
However, the industry has mixed reactions to this policy. The Pharmaceutical Research and Manufacturers of America (PhRMA) stated that the policy would weaken pharmaceutical company profits, thereby affecting new drug development. Pharmacy intermediaries like CVS expressed support for the government's focus on drug pricing issues but hoped to participate in policy discussions. Some pharmaceutical company stocks fell and then rose after the order was issued, reflecting market doubts about the policy's enforceability and actual impact.
Trump Administration's Stance on Tariff and Drug Price Policies
The Trump administration has consistently advocated using high tariffs to pressure trade opponents to promote US manufacturing and employment. Although the "90-day tariff reduction" agreement is a temporary concession, Trump emphasized that tariffs on industries like steel, automobiles, and aluminum will stay in place, and the possibility of future tariff increases is reserved.
Regarding drug prices, Trump had proposed a similar "Most Favored Nation Pricing" policy during his 2020 term, but it was blocked by the courts and later revoked by the Biden administration. The revival of this policy indicates Trump's tough stance on drug price reform in a potential second term.
