Us and China agree to reduce tariffs, signaling trade war pause

The United States and China have reached a historic agreement to significantly reduce tariffs on each other’s goods for a period of 90 days, marking a pivotal moment in their ongoing trade relations. This accord, announced by US Treasury Secretary Scott Bessent, emerged from negotiations held over the weekend in Geneva, Switzerland.

Under the terms of the agreement, the United States will lower its tariff on Chinese imports from 145% to 30%, while China will reduce its duties on American goods from 125% to 10%. This reprieve is set to take effect on Wednesday, May 14.

“We have reached an agreement on a 90-day pause,” Bessent stated during a press briefing. “The consensus from both delegations is that neither side wanted a decoupling.” This sentiment reflects a mutual desire to stabilize economic interactions and avoid further escalation of tensions.

The breakthrough follows a series of trade talks in Geneva, where officials established a framework for ongoing discussions about economic and trade relations. Bessent will continue to represent the United States in subsequent negotiations, while Chinese Vice Premier He Lifeng will advocate for his country’s interests.

Market reactions to the announcement were overwhelmingly positive. The Hang Seng index in Hong Kong saw a significant increase of 3.4%, while the UK’s FTSE 100 climbed by 0.7%. Additionally, oil prices surged, with Brent Crude rising by 2.8%. Futures tied to the Nasdaq also indicated a promising outlook, suggesting an expected rise of 3.3%.

Despite this temporary respite, analysts caution against complacency. While the agreement provides a much-needed pause, it does not address the deeper-rooted issues that have characterized US-China relations, such as intellectual property rights, forced technology transfers, and allegations of unfair government subsidies.

The International Chamber of Commerce has called for a comprehensive roadmap to guide future negotiations under the newly established economic consultation mechanism. Notably, the agreement allows for a 20% component of the US tariff to remain in place, aimed specifically at compelling China to address the fentanyl crisis, a pressing concern for US officials. Bessent expressed optimism regarding China’s willingness to engage with this issue, noting that Chinese officials have acknowledged the severity of the crisis.

China’s commerce ministry has confirmed the suspension of all tariff countermeasures imposed against the US since early April. In a statement, the ministry emphasized that this move aligns with the expectations of producers and consumers in both nations, expressing hope for continued collaboration on trade matters.

The timing of this tariff reduction is critical for both economies. US retailers have warned of impending shortages, while Chinese factories have reported significant declines in export orders, exacerbating the challenges faced by their economy.

In summary, while this agreement signals a hopeful step forward in US-China relations, it serves as a reminder of the complexities inherent in their economic interactions. The 90-day window provides both nations with the opportunity to tackle longstanding issues that have the potential to shape the future of their trade relationship.