China hailed a trade agreement with the U.S. that will see both sides sharply reduce their tariffs for 90 days, calling it an "important step" that could lead to "deepening cooperation" between the world's two largest economies.

The May 12 announcement is best viewed as a truce that does not shift the underlying structural reality: the U.S. and China are locked into a long-term cycle of escalating strategic competition.

The temporary lifting of triple-digit trade levies between China and the U.S. while trade talks get under way removes the threat of an immediate stagflationary hit to the economy. This is very good news.