U.S. and China Reach Tentative Trade Deal; Canada Drops Digital Services Tax

On June 27, 2025, the U.S. and China announced a new agreement to deescalate ongoing trade tensions, although details remain scarce and significant issues between the two countries are unresolved. President Trump stated that a deal had been signed “the other day,” and China’s Commerce Ministry confirmed that an arrangement had been reached, but to date neither side has released the full text of the agreement.

The pact follows months of escalating tariffs and export controls, with both countries imposing triple-digit tariffs on each other’s goods—up to 145% on Chinese goods and 125% on U.S. goods (for prior coverage, see the trade alert dated April 10, 2025). These tariffs were reduced after recent negotiations in Geneva, with U.S. tariffs dropping to 30% and China’s to 10%. The agreement builds on a framework established during talks in London in June, where China agreed to ease restrictions on magnets and rare earth mineral exports critical to U.S. manufacturing and microchip production. Nonetheless, China maintains a strict export licensing program over these critical minerals given the significant role this items play in the aerospace, defense, and automotive sectors, especially in the U.S. In return, the U.S. will lift certain restrictive measures imposed on China, though specifics on U.S. export controls remain unclear.

The recent agreement is seen as a step toward reducing tensions, but it is not a comprehensive resolution of the underlying trade disputes. Key concerns about China’s trade practices and the U.S. trade deficit with China remain unaddressed.


Other Trading Partner Agreements

In April, President Trump imposed a universal reciprocal 10% tariff on imports from all countries under the International Emergency Powers Act (IEEPA). Separate reciprocal tariffs of 11% to 50% were also announced on 57 countries with which the U.S. runs a trade deficit. These reciprocal tariffs were suspended for 90 days, with the pause originally set to expire on July 9, 2025, to allow for further negotiations, but this deadline has been moved to August 1 while talks with trading partners continue or are initiated.

On June 27, President Trump announced the immediate suspension of trade talks with Canada in response to Canada’s plan to impose a 3% digital services tax on technology firms, which would apply retroactively and is expected to result in a $2 billion tax bill for U.S. companies. Canada announced on June 29 that it would rescind the imposition of the digital services tax to advance trade negotiations with the U.S. Talks are expected to resume shortly (for prior coverage, see the global trade alert dated 1 July 2025 and the insight dated October 8, 2024). 

Several other U.S. trading partners are actively seeking more favorable terms. U.S. Treasury Secretary Bessent has indicated that an interim trade agreement between the U.S. and India is at hand, as India faces the prospect of country-specific reciprocal tariffs of 26%.

Japan has engaged in trade negotiations with the U.S. Prior to the implementation of the tariff pause, Japanese goods were subject to a country-specific reciprocal tariff rate of 24%. President Trump has identified rice as a significant point of contention in the discussions, alleging that Japan remains unwilling to accepting more imports of U.S.-grown rice. Significantly, on July 7, President Trump announced via a Truth Social post that the U.S. is imposing a 25% tariff on imports from Japan starting August 1. The tariff rate is detailed in a letter to Japan’s prime minister, also posted to Truth Social. A similar letter was sent to the president of South Korea and President Trump has indicated that more letters will be sent to trade partners in the coming days.

The president also announced a pact with Vietnam on July 3. The text of this agreement is not yet available, but according to President Trump, it includes a 20% reciprocal tariff on Vietnamese goods and a 40% “transshipping” tariff, the latter which would apply to prevent businesses from circumventing import duties by transferring goods that originated in another country to Vietnam for final shipment to the U.S. While the 20% rate is less than half of the original 46% reciprocal tariff announced in April, it is still double the 10% universal reciprocal tariff. Vietnamese imports from the U.S. would be subject to 0% tariffs.

To date, the UK is the only country with a formalized trade deal to address reciprocal tariffs. UK-originating automobiles, automotive parts, aerospace products, steel, and aluminum benefit from lower tariff rates compared to other trading partners (for prior coverage, see the trade alert dated June 20, 2025). However, details of this plan have yet to be finalized.

BDO Insight

With only a few weeks left before the new August 1 deadline to impose the country-specific IEEPA reciprocal tariffs resumes, many are left wondering if this deadline can be met. Formal trade agreements typically take years to negotiate given the various industries, products, and competing national interests at stake. However, Trade Promotion Authority (TPA) in the U.S. lapsed in 2021. Without this law, the Executive Branch (Office of the U.S. Trade Representative) has no ability to negotiate traditional free trade agreements, which must be ratified by Congress on an up or down vote with no amendments. Instead, the deals now under negotiation appear to be more driven by the Treasury and Commerce Departments and will not have the legal force of a true free trade agreement (like the United States Mexico Canada Agreement). Without the need to consult with Congress throughout the course of the negotiations (which was required under TPA), perhaps these trade deals can be concluded on a short timeline, as many U.S. trading partners are hoping. However, any ultimate trade deal (which will be announced via an Executive Order) is only valid for as long as the president views the deal as worth maintaining. Future presidents may have a different view of these trade deals and can withdraw the U.S. from them at any time. For this reason, some believe that revival of TPA is the only way to ensure lasting free trade agreements with long-term benefits for the U.S.

Please visit BDO’s International Tax Services page for more information on how BDO can help your customs and trade needs.