On Monday, the United States and China reached an agreement to temporarily suspend most of the tariffs that have been imposed on each other’s goods, marking a significant de-escalation in the ongoing trade tensions between the two largest economies in the world. As part of this agreement, the reciprocal tariffs between the two countries will be dramatically reduced from 125% to just 10%. However, the U.S. will maintain its 20% duties on Chinese imports related to fentanyl, resulting in overall tariffs on China standing at 30%.
This development follows critical negotiations held over the weekend between trade representatives from both nations in Switzerland. The discussions culminated in what U.S. Treasury Secretary Scott Bessent described as "very productive talks," with the serene setting of Lake Geneva contributing positively to the negotiation process. Bessent announced at a news conference that the two countries had agreed on a 90-day pause to substantially lower the tariff levels, with both sides reducing their tariffs by 115%.
The suspension of tariffs is set to commence on Wednesday, with both China and the U.S. committing to continue discussions on economic and trade policies. This pause comes in the wake of a series of aggressive trade measures initiated by U.S. President Donald Trump since his return to the White House in January. These measures have disrupted financial markets and heightened fears of a recession, with the U.S. imposing tariffs of up to 145% on Chinese imports. In retaliation, Beijing had imposed its own restrictions, including on some rare earth elements.
The announcement of the tariff reprieve was met with optimism from investors. In the U.S., Nasdaq futures indicated a 3.7% increase, while S&P 500 futures rose by 2.7%, and the Dow gained over 840 points, or 2%. The ICE U.S. Dollar Index, which tracks the dollar against a basket of global currencies, also saw a notable rise, increasing by 1.1% to 101.46. Meanwhile, in Europe, the pan-European Stoxx 600 index climbed around 1% during midmorning trading.
The news also had an impact on oil prices, with international benchmark Brent crude futures for July expiry trading over 2.7% higher at $65.66 a barrel. U.S. West Texas Intermediate futures similarly increased, standing at $62.81, up 2.9% for the session.
Mark Williams, chief Asia economist at Capital Economics, characterized the trade war truce as a "substantial de-escalation." However, he noted that the U.S. still maintains higher tariffs on China compared to other countries and appears to be encouraging other nations to implement their own trade restrictions on China. Williams expressed caution, suggesting that there is no assurance the 90-day truce will lead to a lasting resolution.
Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, remarked that the scale of the U.S.-China tariff reduction was more significant than anticipated. He suggested that both sides acknowledge the economic reality that tariffs could hinder global growth, and negotiation is a preferable path forward. Hui pointed out that while the 90-day period might not suffice for reaching a detailed agreement, it maintains the momentum in the negotiation process. He also noted that investors are looking for more information on other trade terms, such as potential changes in China's rare earth export restrictions.
This agreement reflects a critical moment in U.S.-China relations, as both countries seek to manage their economic and trade interactions more constructively. The temporary suspension of tariffs provides some relief to markets and investors, who have been closely monitoring the developments in this trade conflict. However, the path to a comprehensive and lasting trade agreement remains uncertain, with ongoing negotiations necessary to address the broader issues at play.
As the world watches these developments unfold, the focus will remain on how the U.S. and China navigate this complex economic relationship and whether they can ultimately reach a more permanent solution to their trade disputes. The coming months will be crucial in determining the trajectory of this relationship and its impact on global economic stability.