GENEVA — In a significant move to mend the frayed trade relations between the United States and China, the two economic giants agreed on Monday to lower the high tariffs that had recently been imposed on each other. This decision aims to rejuvenate the stalled trade relations between the world’s largest economies and has sparked a positive reaction in global financial markets.
However, this step towards de-escalation does not resolve the fundamental trade disagreements between Beijing and Washington. The agreement, which is temporary and set to last 90 days, allows U.S. and Chinese officials some breathing room to negotiate more profound changes. Despite this truce, the tariffs remain elevated compared to their levels before the aggressive escalation by President Donald Trump last month. Businesses and investors continue to face uncertainties regarding the permanency of this truce.
The U.S. Trade Representative announced a reduction of tariffs from 145% to 30%, while China reciprocated by decreasing its tariff on U.S. goods from 125% to 10%. At a news conference in Geneva, U.S. Trade Representative Jamieson Greer, alongside Treasury Secretary Scott Bessent, detailed these changes and conveyed optimism for future discussions that would address ongoing trade issues. Bessent remarked that the steep tariffs recently imposed were tantamount to a blockade—an outcome that neither country wanted.
The meetings in Geneva, held over the weekend at a picturesque villa beside Lake Geneva, saw delegations mingling personally to enhance trust and discussions for a coveted agreement. The talks—a blend of intense sessions and informal conversations—culminated in this critical agreement.
The United States now upholds a 30% tariff on Chinese products, combining existing tariffs intended to pressure China to prevent the flow of the opioid fentanyl, along with other previously established tariffs. Before agreeing to lower tariffs, the U.S. had surged its combined tariff to 145%, as a display of frustration against China’s retaliatory actions.
According to China’s Commerce Ministry, the agreement marks an essential step towards resolving the enduring trade discord and sets a foundation for further economic cooperation. They underscored the mutual benefits to producers and consumers in both countries and the alignment with the broader global economic interests. The ministry hopes for an end to unilateral U.S. tariff hikes, expressing a desire for cooperation with the U.S. to ensure a stable global economy.
China also agreed to roll back some retaliatory measures, including export controls on crucial rare earth materials and restrictions on American businesses—actions initially imposed in reaction to U.S. tariffs.
The announcement brought cheer to financial markets, as futures on the S&P 500 increased by 2.6%, the Dow Jones Industrial Average climbed by 2%, and oil prices rose by more than $1.60 a barrel. The dollar strengthened against the euro and the yen, reflecting investor optimism.
Economists, however, caution against premature celebration. Mark Williams, Chief Asia Economist at Capital Economics, noted the substantial de-escalation but warned about the lack of guarantee for a lasting ceasefire post the 90-day truce. Harvard economist Dani Rodrik expressed skepticism, stating that tariffs remain high and ultimately harm American consumers without yielding tangible gains from China.
The swift conclusion of this agreement indicates significant underlying economic pressures on both sides, according to Craig Singleton from the Foundation for Defense of Democracies. The deal provides both Trump with a political victory and China a needed reprieve from economic woes such as rising unemployment and declining export orders.
Global markets responded favorably, with shares surging across various indices. Hong Kong’s Hang Seng index rose nearly 3%, while European markets also experienced gains. Despite the positive development, trade policy expert Eswar Prasad from Cornell University highlighted ongoing constraints on trade and investment due to lingering high tariffs and the cloud of uncertainty hovering over future tariff directions.
Finally, U.S. businesses welcomed the reduced tariff rates. Jay Foreman, CEO of Basic Fun, expressed relief but noted that some costs would still need to be passed on to consumers. While his toy company avoided drastic price hikes under the previously exorbitant tariffs, a 10-15% increase was still anticipated for the remainder of the year.