U.S. and China Agree to 90-Day Tariff Truce in Major Trade War De-escalation

 

 

 

Markets surge as reciprocal tariffs drop from 125% to 10%, but long-term uncertainties remain

Key Developments

• Tariff cuts: The U.S. will reduce tariffs on Chinese imports from 145% to 30%, while China slashes its levies on U.S. goods from 125% to 10% for 90 days, effective May 14 2510.

• Exclusions: U.S. 20% tariffs on fentanyl-related imports remain unchanged, and prior tariffs (e.g., 25% on industrial goods) stay in place 512.

• Market reaction: Global stocks rallied sharply, with the Dow surging 1,100 points (2.7%), the S&P 500 up 3.1%, and the Nasdaq jumping 4.1% 57. Asian markets, including Hong Kong’s Hang Seng (+3%), also gained 10.

Behind the Deal

1. Negotiations in Geneva: The breakthrough followed weekend talks between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, marking the first high-level meeting since Trump’s April tariff escalation 67.

   • Bessent called the agreement a move toward "more balanced trade," while China’s Commerce Ministry termed it an "important step" to resolve differences 610.

   • Both sides agreed to establish a new dialogue mechanism for future talks 612.

2. Economic Pressures:

   • The U.S. saw its first quarterly GDP contraction since 2022, while Chinese factory activity hit a 16-month low in April due to trade disruptions 10.

   • Retaliatory measures (e.g., China’s rare earth export curbs) will be suspended, offering relief to supply chains 712.

3. Political Calculus:

   • Trump framed the deal as a "historic win," leveraging tariffs to force concessions, but critics argue it undermines U.S. credibility after weeks of market turmoil 312.

   • Beijing avoided triumphalism but signaled satisfaction, with state media highlighting "broad space" for cooperation 710.

Risks and Challenges

• Short-term relief, long-term doubts: Analysts warn the 90-day window may be insufficient to address core issues like the $295 billion U.S. trade deficit or fentanyl controls 712.

• Inflationary pressures: U.S. households could still face $2,800 annual purchasing power loss due to residual tariffs, per Yale researchers 5.

• Logistical bottlenecks: Importers may rush to stockpile goods, driving up shipping costs and inflation 37.

Global Implications

• Dollar volatility: The ICE Dollar Index rose 1.1%, but prolonged uncertainty could deter foreign investors holding $16 trillion in U.S. assets 23.

• Sectoral impacts: Tech and manufacturing sectors cheered the reprieve, though retailers remain wary of 30% effective tariffs on consumer goods 510.

Quotes & Perspectives

• Scott Bessent (U.S. Treasury): "Neither side wants decoupling... We want trade, just more balanced" 7.

• Dan Ives (Wedbush Securities): "A best-case scenario for markets, but the hard work starts now" 10.

• Chinese Commerce Ministry: "Equal dialogue creates conditions for deeper cooperation" 10.

What’s Next?

• Follow-up talks will focus on extending the truce and addressing structural issues, including non-tariff barriers and supply chain security 612.

• Business reactions: Firms like Maersk welcomed the "predictability," while small exporters brace for potential tariff resumptions 57.