The United States and China announced an agreement Saturday to reduce tariffs on a subset of each other's goods, in a move suggesting de-escalation in the trade war after Chinese President Xi Jinping's state visit. The two countries reached consensus on recommendations for more favorable tariff treatment for $30 billion of non-sensitive goods in each direction.
The effective US tariff rate on Chinese goods of around 23% remains well above the average levy the US imposes on other major trading partners, but the deal signals potential for further relief. China also agreed to import at least 10 million metric tons of coal from the United States in 2027 and again 2028, addressing agricultural and energy concerns.
However, the tariff relief competes with economic headwinds from rising rates. Treasury yields hit their highest levels in 20+ years, with the 10-year reaching 5.163% (highest since 2007) and the 30-year reaching 5.488% (highest since 2004), reflecting concerns about sticky inflation and strong growth. The Federal Reserve approved its first interest rate hike since 2023, increasing its key interest rate by 25 basis points to combat inflation, and signaled another hike could follow.
10-year Treasury yields jumped to 5.163%, the highest since 2007, while 30-year yields reached 5.488%, the highest since 2004, reflecting elevated inflation expectations and strong economic growth. The economy is growing steadily despite repeated shocks and may be accelerating, while big tech firms are borrowing huge amounts of cash for data center construction and the federal government continues running large yearly budget deficits, all contributing to rate pressure.
The Federal Reserve approved its first interest rate hike since 2023 in an unanimous decision, increasing its key interest rate by 25 basis points to a target range of 3.75%-4%. Chairman Kevin Warsh said inflation has been 'too high for too long' and stated the Fed 'must be confident that underlying inflation is moving to our objective clearly and at sufficient speed'.
Starbucks expects to shutter about 250 underperforming cafes out of its more than 18,000 locations in North America and will incur about $300 million in restructuring charges. The announcement marks the second round of closures in North America during CEO Brian Niccol's two-year tenure, part of a broader 'Back to Starbucks' turnaround strategy.
The United States and China agreed to reduce tariffs on a subset of each other's goods, with consensus on recommendations for more favorable tariff treatment for $30 billion of non-sensitive goods in each direction. American businesses ramped up orders for Chinese goods in the weeks leading up to the summit, with shipments to the US rising as China's relative tariff position improved.
US orders for business equipment increased more than projected in August, with core capital goods orders rising 1.6% last month after an upwardly revised 0.6% gain in July, suggesting firms still see investment opportunities despite higher financing costs. Total nonfarm payroll employment increased by 162,000 in August and the unemployment rate held at 4.1%, with employment gains in food services and drinking places and in local government education.
The US-China tariff agreement reducing duties on $30 billion in goods each direction is a genuine win for importers and manufacturers relying on Chinese inputs, lowering near-term pressure on supply chains and input costs. For small and mid-sized businesses in retail, consumer goods, and manufacturing, this means some margin relief and pricing stability may return. However, elevated borrowing costs present a counterweight: with 10-year Treasury yields at 5.163% and 30-year yields at 5.488%, both at 20+ year highs, access to capital for expansion or refinancing just became materially more expensive.
Companies should expect a mixed environment through year-end. The 4.1% unemployment rate and steady job growth signal healthy demand, but the Fed's rate hike and signals of another to come mean financing will stay tight. SMBs with strong cash flows can capitalize on tariff relief and solid customer demand; those dependent on debt or credit lines should lock in financing now before rates move higher. Focus on operational efficiency and cost management rather than large capital expenditures for the next quarter.