On Monday, the world’s two largest economies reached an agreement to reduce the steep tariffs that had been preventing commerce between them from picking back up, sending stock markets around the world into a frenzy.
Despite President Trump’s efforts to de-escalate the trade conflicts, the fundamental disagreements between Beijing and Washington remain unresolved. The agreement’s 90-day duration will give the United States and China plenty of time to negotiate a more comprehensive accord. However, tariffs are still higher than they were when Trump began increasing them last month, even though the respite has ended. In addition, companies and investors are faced with the challenge of not knowing how long the truce will be in effect.
American officials have reached an agreement to reduce Trump’s tax rate from 145% to 30%, according to U.S. Trade Representative Jamieson Greer. China has committed to reducing its tariff rate on American goods from 125% to 10%.
A total blockade is prevented by a bargain.
At a press conference in Geneva, Greer and Scott Bessent, the secretary of the Treasury, announced the reductions in tariffs.
In a constructive move, the authorities said that discussions had been set up between the two parties to continue addressing the trade concerns. In a move that escalated tensions initiated by Trump, the two nations put tariffs on each other last month, with Bessent stating that these penalties were triple-digit in value and that neither side desired such a measure. Sure, we’d want to exchange.
At a sun-drenched 18th-century mansion that is the official residence of the Swiss ambassador to the United Nations in Geneva, the delegations gathered for at least a dozen hours on both days of the weekend, escorted about town by dozens of Swiss police.
In an effort to forge closer personal bonds and finally seal the agreement, the delegation’s leaders would occasionally leave their staffs behind and relax into couches on the villa’s patios, which looked out over Lake Geneva.
A bargain at last
In an effort to deter the import of synthetic opioid fentanyl, the United States has increased its tax on Chinese products from 20% to 30%. This new charge builds on the previous 20% duty. Additionally, it incorporates the identical 10% “baseline” tax that Trump has applied on imports from the majority of nations worldwide. China is subject to many taxes, including the 30% additional tax and some that were retained by previous president Joe Biden and Trump from their respective terms in office.
In response to China’s retaliation, Trump raised the overall duty to 145% last month; on Monday, he reversed course.
The accord was hailed by China’s Commerce Ministry as a significant milestone in resolving the bilateral dispute and establishing a solid groundwork for future collaboration.
“This initiative is in line with what producers and consumers in both countries are hoping for, and it will benefit both countries and the world at large,” stated the ministry.
According to the ministry, China is hoping that the United States would end “the erroneous practice of unilateral tariff hikes” and collaborate with them to protect the growth of trade and economic ties, which will provide more stability and certainty to the international economy.
China has also committed to halt or reverse other actions it has taken since April 2 in reaction to the tariffs imposed by the United States, according to the joint statement from the two nations. In addition to adding more American businesses on its export control and unreliable entity lists, which restrict their dealings with and in China, China has tightened export controls on rare earths, including several that are essential to the military sector.
Markets see a surge as tensions subside
It is yet uncertain what effect the complex trade sanctions and tariffs imposed by Washington and Beijing will have. Whether or if they can resolve their long-standing issues during the 90-day ban is a major one.
In an interview with CNBC, Bessent announced that the United States and China will be holding another round of meetings in the near future.
Investors, meanwhile, were ecstatic as trade emissaries from the two largest economies in the world seemed to blink.
There was a 2% increase in the Dow Jones Industrial Average and a 2.6% increase in S&P 500 futures. The dollar strengthened versus the euro and the yen, while oil prices increased by almost $1.60 per barrel.
Mark Williams, chief Asia economist at Capital Economics, stated, “This is a substantial de-escalation.” There is no assurance that the 90-day truce will lead to a permanent ceasefire, he said.
Harvard economist Dani Rodrik claimed that the two nations had avoided a “needless trade war,” but that the United States’ steep 30% tariffs on Chinese imports “will mainly hurt U.S. consumers.”
After sowing confusion, Trump has gotten zero in return from China. “None at all,” Rodrik posted on Bluesky.
It was stated by Craig Singleton, senior director of the China program at the Foundation for Defense of Democracies, that “both sides were more economically boxed in than they let on” due to the rapidity with which the deal was reached.
Reducing export orders at a rate not seen in almost two years, increasing unemployment, and capital flight were all signs of “real economic pain” for China, according to Singleton. “This deal gives Trump a win without abandoning leverage, which was important for him because markets mattered.”
U.S. futures increased by more than 2% following the statement by the two countries, which caused shares to surge. The Hang Seng index in Hong Kong increased by over 3%, while the corresponding benchmarks in Germany and France increased by 0.7%.
“The reduction from extremely high to relatively high tariffs, coupled with the lack of clarity regarding the trajectory of future tariffs, will continue to act as a barrier to investment and trade flows between the two economies,” stated Eswar Prasad, a trade policy expert at Cornell University.
“However, the fact that U.S. tariffs may, in time, become substantial trade barriers rather than insurmountable walls is encouraging news for the global economy,” he stated.
The tariff rate on Chinese imports has been reduced to 30%, which is a relief for Jay Foreman, CEO of Basic Fun, a Florida-based firm that produces toys like Tonka trucks and Care Bears. But he would want to see that reduced to 10%.
Foreman announced that he had just instructed his Chinese staff to resume shipping toys, which had been on hold since the beginning of April. According to him, he had anticipated having to quadruple prices before Monday’s deal—but they will still increase, by 10% to 15%, in the third and fourth quarters.
“It’s as if they attempted to offer us a sandwich with spoiled eggs and hoped we would be content with spoiled milk instead,” Foreman said.
