Published on 14/05/2025
United States and China announced a 90-day pause on most of their recent tariffs on each other, fueling hopes on Wall Street of a cooldown in the trade war between the world’s two largest economies.
The combined U.S. tariff rate on Chinese imports will be cut to 30% from 145%, while China’s levies on U.S. imports will fall to 10% from 125%, the countries said early Monday morning.
Officials met in Geneva over the weekend for their first face-to-face talks since President Donald Trump’s shock tariff rollout on April 2, when he imposed 84% duties on Chinese imports, adjusted them to to 125% soon afterward, and hiked them further to 145% a day later.
The new 30% rate is the sum of the 20% duty Trump imposed early in his second term over alleged Chinese failures to curb fentanyl flows and the 10% universal tariff he has applied to nearly all foreign imports.
Markets surged on news of the detente. The broad-based S&P 500 was trading 3.1% higher Monday afternoon, and the Dow Jones Industrial Average added more than 1,100 points, a roughly 2.7% gain. The tech-focused Nasdaq surged 4.1%.
European indexes posted modest gains Monday. Markets across Asia had upbeat sessions as well ahead of the news, anticipating some kind of trade agreement and also welcoming a ceasefire between India and Pakistan that largely seems to be holding. Hong Kong’s Hang Seng Index soared on news of the U.S.-China agreement, closing more than 3% higher.
Yet some analysts have urged caution, noting that tariffs remain far higher than before Trump regained office. That suggests many consumer goods — from cars and groceries to fireworks — are set to see price hikes. Federal data is set to provide a fresh inflation snapshot on Tuesday morning.
“The full set of U.S. tariffs would still be considerably higher and broader than expected by markets at the start of the year,” Goldman Sachs analysts wrote in a note to clients Monday, noting that the 90-day countdown “should keep uncertainty high for both investors and businesses.”
The U.S.’s effective tariff rate would now be 17.8%, the highest since 1934, which Yale Budget Lab researchers estimated Monday would dent households’ annual purchasing power by $2,800.
The United States has a larger goods trade deficit with China than with any other country, and Trump has often accused it of “ripping off” the U.S. through unfair trade practices. Unlike other U.S. trading partners, Beijing responded by imposing retaliatory tariffs and other countermeasures that escalated into a dizzying game of one-upmanship.
The dueling import taxes were “the equivalent of an embargo,” which neither side wanted, said Treasury Secretary Scott Bessent. “We do want trade, we want more balanced trade, and I think that both sides are committed to achieving that,” he said.
Bessent, who represented the U.S. in the talks with Beijing along with Trade Representative Jamieson Greer, rejected suggestions that negotiating right away would have been more productive than triggering a tariff spat that caused global financial turmoil, saying that a “business as usual” effort to rebalance trade would not have worked.
The U.S. and China now have “a mechanism to avoid the upward tariff pressure,” Bessent told CNBC Monday. “I would imagine that in the next few weeks we will be meeting again to get rolling on a more fulsome agreement,” he added.
Greer noted that separate discussions on fentanyl were “on a very positive track.
The Chinese Commerce Ministry said the agreement was an “important step” and “creates favorable conditions for further narrowing differences and deepening cooperation.”
“It is hoped that the U.S. will build on the foundation of this meeting, continue to work in the same direction with China” and “completely correct its unilateral tariff practices,” a spokesperson said.
Bessent emphasized that the U.S. does not want a broad-based “decoupling” from China, preferring instead a “strategic decoupling, because we realized during Covid that efficient supply chains were not secure supply chains,” he told MSNBC. “So with steel, with semiconductors, with medicines, with a couple of other strategic categories, we are going to have to become self-reliant again.”
Tariff impacts are already being felt across the United States, with shipping volumes from China falling sharply since early April. Danish shipping giant A.P. Moller-Maersk said Monday that the 90-day reprieve was “a step in the right direction” that it hoped could “create the long-term predictability our customers need.”
The agreement is also good news for small and medium-sized businesses “on both sides of the Pacific,” said Tianchen Xu, a Beijing-based economist at the Economist Intelligence Unit, a financial forecasting service. It should be “a very big relief for struggling small Chinese exporters, some of which have already lost U.S. orders for weeks,” while American buyers are gaining some breathing room over surging costs, he said in emailed comments.
The agreement exceeded expectations and has “rekindled global hope,” said Wang Wen, dean of the Chongyang Institute for Financial Studies at Renmin University of China. But Xu and Wang both cautioned that many difficult issues remain to be resolved.
“This situation is a major test of the political wisdom and negotiation capability of the decision-makers in both China and the U.S.,” Wang said.
Ahead of the bilateral talks in Geneva, Trump had expressed willingness to slash tariffs on Chinese imports from 145% to 80%, saying that level “seems right” but leaving the decision to Bessent.
“You can’t get any higher,” Trump told reporters late last week. “It’s at 145, so we know it’s coming down.”
