The United States and China struck a historic deal in Geneva, agreeing to slash bilateral tariffs from astronomical levels to more reasonable rates for 90 days, sending global markets soaring but leaving questions about a permanent trade solution.
At a Glance
- US and China agreed to reduce reciprocal tariffs by 115%, with American tariffs dropping from 145% to 30% and Chinese tariffs falling from 125% to 10%
- The 90-day agreement maintains pressure for continued negotiations while immediately easing trade tensions
- Global stock markets rallied on the news, with analysts describing it as a “dream scenario” for investors
- A formal mechanism for ongoing discussions will be established between high-level officials from both countries
- The deal maintains 20% tariffs on fentanyl-related products from China
Trade Relief After Extended Tensions
The agreement announced after negotiations in Geneva represents a significant de-escalation in the prolonged trade war between the world’s two largest economies. Under the terms, the United States will reduce tariffs on Chinese goods by 24 percentage points while maintaining a base rate of 10%, effectively bringing the overall tariff rate down from 145% to 30%. Similarly, China agreed to lower its retaliatory tariffs on American products from 125% to 10% and suspend non-tariff countermeasures implemented since April 2.
Both nations committed to implementing these changes by Wednesday, indicating an eagerness to quickly resolve the immediate trade standoff. The 90-day timeframe maintains pressure on negotiators while providing breathing room for businesses adversely affected by the elevated tariffs that have disrupted global supply chains and increased costs for consumers in both countries.
Market Impact and Economic Outlook
Global markets responded enthusiastically to the announcement, with stock indexes climbing across Asia, Europe, and in U.S. futures trading. The effective U.S. tariff rate on Chinese imports dropping from 108.8% to 27% provided a significant relief to investors concerned about prolonged trade disruptions. The U.S. dollar index rose by 1%, while the yield on the U.S. 10-year Treasury note increased by 6 basis points, signaling renewed economic optimism.
“The magnitude of this tariff reduction is larger than expected”, said Tai Hui.
Wall Street strategists anticipate further rallies in the coming weeks, with U.S. stocks expected to outperform European counterparts in the short term. Several analysts described the deal as a “dream scenario” and a “huge win for the market,” particularly as it exceeded the modest expectations many had set for the Geneva discussions. The temporary agreement is also expected to boost inventory increases and reinvigorate demand for container freight services.
U.S. AND CHINA TO CUT TARIFFS, EASING TRADE TENSIONS
The U.S. and China agreed to sharply reduce tariffs, signaling a shift from conflict to cooperation between the world’s top economies.
Key points from Geneva talks:
🔸 Trump’s tariff on Chinese goods drops to 10% from 125%.…
— *Walter Bloomberg (@DeItaone) May 12, 2025
Framework for Ongoing Negotiations
Beyond the immediate tariff reductions, the agreement establishes a mechanism for continued discussions on economic and trade relations. These talks will be led by Chinese Vice Premier He Lifeng, U.S. Treasury Secretary Scott Bessent, and U.S. Trade Representative Jamieson Greer. The joint statement emphasized that discussions may occur alternately in China, the United States, or a third country, with additional working-level consultations as needed.
“Today’s announcement even exceeds our constructive expectations”, according to strategists at Deutsche Bank.
Both countries explicitly acknowledged the importance of developing a sustainable, long-term, and mutually beneficial economic relationship. The agreement stands out as China was the only country to retaliate against U.S. tariffs imposed earlier this year, leading to an escalating trade war that threatened global economic stability. While the 90-day window is widely viewed as insufficient for reaching a comprehensive long-term agreement, it provides crucial time for negotiators to address fundamental issues that have driven tensions between the economic superpowers.
Economic Recovery and Trade Resumption
Trade between the U.S. and China is expected to resume swiftly following months of decline in freight and shipping activity since April. While the agreement maintains 20% tariffs related to fentanyl products from China, the substantial reduction in most tariffs removes a significant barrier to bilateral commerce. Businesses that had curtailed operations or sought alternative supply chains may now reconsider their strategies in light of the improving trade environment.
The deal represents a pragmatic approach by both countries to step back from economically damaging tariff levels while maintaining leverage for future negotiations. Though questions remain about whether a permanent solution can be reached within the 90-day window, the immediate relief provides businesses and investors with greater certainty in the near term. The formalized structure for ongoing talks suggests both sides recognize the importance of maintaining open channels of communication on trade issues.
