The United States and China announced Monday an agreement to drastically reduce tit-for-tat tariffs for 90 days, de-escalating a trade war that has roiled financial markets and raised fears of a global economic downturn.
After their first talks since US President Donald Trump launched his trade war, the world’s two biggest economies agreed in a joint statement to bring their triple-digit tariffs down to two figures and continue negotiations.
US Treasury Secretary Scott Bessent described the weekend talks with Chinese Vice Premier He Lifeng and international trade representative Li Chenggang as “productive” and “robust”. “Both sides showed a great respect,” Bessent told reporters.
US President Donald Trump had imposed duties of 145 percent on imports for China last month – compared to 10 percent for other countries in the global tariff blitz he launched last month.
Beijing hit back with duties of 125 percent on US goods. Bessent said the two sides agreed to reduce those tariffs by 115 percentage points, taking US tariffs to 30 percent and those by China to 10 percent.
In their statement, the two sides agreed to “establish a mechanism to continue discussions about economic and trade relations”. China hailed the “substantial progress” made at the talks.
Donald Trump has upset the world order by slapping whopping taxes on imports. But his primary target is the Asian giant.
“This move... is in the interest of the two countries and the common interest of the world,” the Chinese commerce ministry said, adding that it hoped Washington would keep working with China “to correct the wrong practice of unilateral tariff rises”.
The dollar, which tumbled after Trump launched his tariff blitz in April, rallied on the news while US stock futures soared. European and Asian markets also rallied. The trade dispute between Washington and Beijing has rocked financial markets, raising fears the tariffs would rekindle inflation and cause a global economic downturn.
Step forward
The head of the World Trade Organisation, Ngozi Okonjo-Iweala, praised the talks on Sunday as a “significant step forward” that “bode well for the future”.
“Amid current global tensions, this progress is important not only for the US and China but also for the rest of the world, including the most vulnerable economies,” she added. Ahead of the meeting at the discreet villa residence of Switzerland’s ambassador to the United Nations in Geneva, Trump had signalled he might lower the tariffs, suggesting on social media that an "80% Tariff on China seems right!"
However, White House Press Secretary Karoline Leavitt later clarified that the United States would not lower tariffs unilaterally, saying China would also need to make concessions.
The Geneva meeting came days after Trump unveiled a trade agreement with Britain, the first with any country since he unleashed his blitz of global tariffs. The five-page, nonbinding deal confirmed to nervous investors that Washington was willing to negotiate sector-specific relief from recent duties. But Trump maintained a 10 percent levy on most British goods, and threatened to keep it in place as a baseline rate for most other countries.
US Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet Chinese economic tsar He Lifeng in Switzerland for talks that could be the first step toward resolving their trade disputes.
Around the world
According to Kenneth Broux, a senior strategist FX and Rates at Societe Generale in London, there is a de-escalation between China and US resulting in a reduction of tariff on Chinese goods to 30 percent and Chinese tariffs on US goods to 10 percent.
“It’s a clear vote by the market in favour of riskier assets. It’s a step in the right direction and a positive of US assets and US economy,” he said.
“The dollar was lagging other markets in the recovery from the April lows. We had equities up back to April 2nd levels, we had bond yields up to those levels and the dollar was actually lagging that move,” he added.
Now, he said, the conditions are falling into place for a deeper adjustment and a bigger recovery of the dollar to catch up with equities and bond yields.
In Hong Kong, Zhiwei Zhang, Pinpoint Asset Management’s chief economist said: “This is better than I expected. I thought tariffs would be cut to somewhere around 50 percent and this is much lower. Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term.”
“But we also need to keep in mind this is only a three-month temporary reduction of tariffs. So, this is the beginning of a long process. The two sides will spend months probably, to come up with a resolution, or reach a final trade deal, but this is a very good starting point,” Zhang added.
For Arne Petimezas of the AFS Group in Amsterdam, such a sharp U-turn by the US on tariffs on a Monday morning is quite the surprise.
“It seems that tariffs on China will fall to manageable levels, albeit temporary. Markets should rally on this,” said Petimezas.
“How can Trump credibly raise tariffs when the 90-day pause ends? He has toned down his tariffs faster than anyone thought he could, and April 2 will soon be forgotten. Granted, he told you to buy the dip,” Petimezas added.
“The result far exceeds market expectations. Previously, the hope was just that the two sides can sit down to talk, and the market had been very fragile,” said William Xin, chairman of the hedge fund Spring Mountain Pu Jiang Investment in Shanghai. “Now, there’s more certainty. Both China stocks and the yuan will be in an upswing for a while,” he added.
Impact on market
Stocks: Futures on the S&P 500 and Nasdaq jumped to trade up 2.8 percent and 3.6 percent, respectively, from gains of 1.5-2 percent previously, while in Europe, the STOXX 600 rose 1 percent in early trading.
Forex: The dollar extended gains, with the euro down 0.8 percent at $1.1164, having traded down 0.2 percent on the day earlier, while the yen weakened, leaving the US currency up 1.1 percent at 146.945, from a 0.5 percent gain earlier.
Bonds: Benchmark 10-year US Treasury yields edged up 6 basis points on the day to 4.435 percent, having traded up 5 bps before the joint statement.
