Markets soar as both nations agree to slash tariffs by 115 percentage points in 90-day trade truce, easing global recession fears while questions about long-term trade relations remain
Introduction
In a surprising diplomatic breakthrough, the United States and China have agreed to a significant rollback of tariffs, providing temporary relief to global markets and easing recession concerns. The 90-day tariff pause reduces levies on Chinese imports from 145% to 30%, while China cuts duties on American goods from 125% to 10%. The announcement triggered an immediate stock market rally, with investors welcoming the reprieve from what had become an increasingly damaging trade standoff.
Key Developments in the US-China Tariff Reduction
Dramatic Reduction in Trade Barriers
The weekend talks in Geneva culminated in what President Trump called a "total reset" of bilateral relations, though analysts view it more as a strategic pause in an ongoing trade conflict. Under the deal, both nations agreed to slash tariffs by 115 percentage points, significantly lowering barriers that had effectively frozen bilateral trade in recent months.
"This is just a pause," said Treasury Secretary Scott Bessent, clarifying that the deal represents a temporary de-escalation rather than a fundamental policy shift. "The April 2 tariff level for China was 34%, so we have moved that down from 34% to 10%." CNN1
Despite the rollback, the effective U.S. tariff rate now stands at approximately 13.1%, according to Fitch Ratings—still substantially higher than the 2.3% that prevailed at the end of 2024 and the highest level since 1941. Reuters2
Market Relief and Economic Impact
The reduction in tariffs is expected to provide immediate economic benefits, with UBS economists estimating an additional 0.4 percentage point of growth for the U.S. economy this year. This relief comes at a critical time, as the threat of stalled trade had raised serious concerns about supply chain disruptions and economic contraction.
"The relationship reset steers the U.S. economy back on a more familiar path as the major consumer of goods as economists lower recession odds," notes Livemint's analysis of the situation. LiveMint3
Oxford Economics has reduced its recession probability, while Samuel Toombs of Pantheon Macroeconomics revised his recession odds from approximately 1 in 3 to about 1 in 5. However, he also warned that even with lower rates, tariffs could still add about 1 percentage point to core inflation—a potential complication for Federal Reserve policy.
Global Reactions to Tariff Pause
China's Cautious Welcome
Chinese officials have expressed measured optimism about the tariff pause while maintaining strong rhetoric about American trade policies. "While we are glad to see the resumption of dialogue, we are also fully prepared for the long-term, complex and arduous nature of resolving differences between the two countries," stated an English-language editorial published across Chinese state media. The Guardian4
President Xi Jinping continued to criticize what he termed American "bullying," warning that "bullying and hegemony will only lead to self-isolation." Chinese officials have repeatedly maintained that Beijing opposes all tariffs and does not want a mutually destructive trade war but remains "willing to fight to the end" if necessary.
Business Community Response
For Chinese exporters, the announcement offers crucial relief after months of disruption that had put an estimated 16 million jobs at risk. "The 30% tariff for 90 days will start goods flowing again for small businesses," said Bruce Kaminstein, though he noted that the costs remain challenging given typical gross margins of 40-50%. CNBC5
Ms. Bao, an executive at a Ningbo foreign trade company, told The Guardian that 30% of their export volume went to the U.S., adding, "It's hard to say what will happen after 90 days because we don't know."
Expert Insights on Market Impact
Stock Market Surge
The tariff announcement triggered an immediate and dramatic market rally. The Dow closed higher by 1,161 points (2.81%), the S&P 500 gained 3.26%, and the tech-heavy Nasdaq Composite surged 4.35%, marking its exit from a bear market. CNN1
"The sharp market rally today reflects the unexpectedly positive tariff news," said Keith Lerner, chief market strategist at Truist Advisory Services. Jeff Buchbinder of LPL Financial added, "No one had these low China tariff rates on their bingo cards," highlighting the surprise factor that contributed to the market's enthusiasm.
Sector-Specific Gains
Technology stocks were particularly strong performers, with Apple rising 6.3%, Tesla up 6.75%, Nvidia gaining 5.4%, Amazon surging 8.1%, and Intel climbing 3.55%. The sector had been especially vulnerable to trade tensions due to the deeply intertwined relationship between American and Chinese technology supply chains.
Luxury goods makers also rebounded sharply, with Hermes up 3.5%, Burberry gaining 3.67%, and LVMH surging 7%. Automakers followed suit, with Stellantis climbing 6.5%, General Motors rising 4.4%, and Ford up 2.6%. CNN1
Economic Analysis
"The US-China agreement to lower tariffs leads to lower recession risk," noted economists from major financial institutions. Carol Schleif, chief market strategist at BMO Private Wealth, added that "the larger-than-expected drop in the tariffs between the US and China, while temporary, and the establishment of a framework for continued discussion, is exactly what the stock market was hoping to see."
Henry Allen, a strategist at Deutsche Bank, emphasized that the de-escalation reduced global recession risks, while former Bank of America chief economist Ethan Harris described the tariff rollback as "legitimately good news." LiveMint3
Future Implications of the Tariff Agreement
Supply Chain Adjustments
While the tariff pause offers temporary relief, it has already sparked a surge in frontloaded shipments as businesses rush to take advantage of the 90-day window. "I have clients with thousands of containers pre-loaded in China that is ready to come in," said Paul Brashier, vice president of global supply chain at ITS Logistics. CNBC5
This rush of activity is expected to drive up shipping costs, with Peter Sand of Xeneta warning that "ocean freight could be up to 20% in the short term from China to the U.S. West Coast." Additionally, Xeneta data shows that the four-week rolling average for offered vessel capacity on the Transpacific route is down 17% since April 20, and blanked sailings have increased by 86% in the same period.
Economic Outlook
While the tariff pause has eased immediate concerns, economists remain cautious about long-term prospects. James Knightley of ING noted that the mutual reduction suggests "both sides are suffering economically from tariffs," making the climbdown beneficial for both nations.
However, Samuel Toombs warns that tariffs at reduced levels could still add approximately 1 percentage point to core inflation, potentially influencing Federal Reserve rate decisions. The mixed inflationary and growth implications create a complex picture for monetary policy makers. LiveMint3
Geopolitical Considerations
Despite the temporary relief, uncertainty remains about the future of U.S.-China trade relations. Chinese officials have made it clear that while the pause is welcome, they view the process of resolving differences as "long-term, complex and arduous."
Meanwhile, the tariff reduction has put pressure on other manufacturing hubs such as Vietnam and Mexico to secure their own favorable trade terms with the United States, potentially reshaping global supply chains. Reuters6
Conclusion
The 90-day tariff pause between the United States and China represents a significant, if temporary, de-escalation in trade tensions that had threatened global economic stability. While markets have responded positively and recession risks have diminished, questions remain about the long-term trajectory of bilateral trade relations once the 90-day period expires. As businesses adjust to this new reality and frontload shipments to hedge against future uncertainty, will this reprieve lead to a more sustainable trade framework, or is it merely delaying the inevitable resumption of tensions?
