(Zero Hedge)—China and the U.S. moved to ease trade tensions early Monday, agreeing to a temporary 90-day reduction in reciprocal tariffs on each other’s goods, according to a joint statement released by both governments on X. The accord, viewed as a breakthrough in a multi-month trade war between the world’s two largest economies, helped spark a rally in global markets: S&P 500 futures rose 3%, while Nasdaq futures gained 4%. European markets also advanced, and the U.S. dollar strengthened. U.S. government bonds sold as investors rotated back into equities and other risk-sensitive assets.
— Rapid Response 47 (@RapidResponse47) May 12, 2025
The joint statement said that the U.S. will reduce levies on most Chinese imports from 145% to 30% by Wednesday.
Here’s a summary of the U.S. actions:
The United States will remove the additional tariffs it imposed on China on April 8 and April 9, 2025, but will retain all duties imposed on China prior to April 2, 2025, including Section 301 tariffs, Section 232 tariffs, tariffs imposed in response to the fentanyl national emergency invoked pursuant to the International Emergency Economic Powers Act, and Most Favored Nation tariffs.
- The United States will suspend its 34% reciprocal tariff imposed on April 2, 2025 for 90 days, but retain a 10% tariff during the period of the pause.
- The 10% tariff continues to set a fair baseline that encourages domestic production, strengthens our supply chains and ensures that American trade policy supports American workers first, instead of undercutting them.
- By imposing reciprocal tariffs, President Trump is ensuring our trade policy works for the American economy, addresses our national emergency brought on by our growing and persistent trade deficit, and levels the playing field for American workers and producers.
- Unlike previous administrations, President Trump took a tough, uncompromising stance on China to protect American interests and stop unfair trade practices.
The breakthrough in the talks also led to China reducing its 125% tariff on U.S. goods to 10%.
Here’s a summary of the Chinese actions:
China will remove the retaliatory tariffs it announced since April 4, 2025, and will also suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025.
- China will also suspend its initial 34% tariff on the United States it announced on April 4, 2025 for 90 days, but will retain a 10% tariff during the period of the pause.
The joint statement indicated that Monday’s agreement would pave the way for further negotiations between senior officials. On the U.S. side, talks are being led by Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, while Vice Premier He Lifeng will represent China…
After taking the aforementioned actions, the Parties will establish a mechanism to continue discussions about economic and trade relations. The representative from the Chinese side for these discussions will be He Lifeng, Vice Premier of the State Council, and the representatives from the U.S. side will be Scott Bessent, Secretary of the Treasury, and Jamieson Greer, United States Trade Representative. These discussions may be conducted alternately in China and the United States, or a third country upon agreement of the Parties. As required, the two sides may conduct working-level consultations on relevant economic and trade issues.
The White House wrote on X that these trade talks will address America’s trade imbalances:
- The U.S. goods trade deficit with China was $295.4 billion in 2024—the largest with any trading partner.
- Today’s agreement works toward addressing these imbalances to deliver real, lasting benefits to American workers, famers, and businesses.
The talks also addressed the ongoing fentanyl crisis.
- The United States and China will take aggressive actions to stem the flow of fentanyl and other precursors from China to illicit drug producers in North America.
— Rapid Response 47 (@RapidResponse47) May 12, 2025
Shortly after the joint statement was released, Bessent, who led the American delegation at the talks, told reporters in Geneva that both sides have “substantially moved down the tariff levels” and “neither side wants a decoupling.”
“We had a very robust and productive discussion on steps forward on fentanyl,” Bessent added, pointing out that those talks might lead to “purchasing agreements” by China.
.@SecScottBessent: “We have reached an agreement on a 90-day pause and substantially moved down the tariff levels — both sides, on the reciprocal tariffs, will move their tariffs down 115%.” pic.twitter.com/Jxdd11U83s
— Rapid Response 47 (@RapidResponse47) May 12, 2025
Commenting on markets, Benedicte Lowe, an equity and derivatives strategist at BNP Paribas Markets 360, told Bloomberg TV that “deescalation was much better than expected by the market” and “for the next couple of days I would expect a bullish environment in the global equity market.”
Last week, President Trump floated the “80% Tariff on China seems right!” trial balloon on Truth Social, noting that the final decision rests with Bessent.
“In our view, equity markets are returning to where they would have moved to if Liberation Day had not happened and Trump had just applied the 10% universal tariff,” said Roberto Scholtes, head of strategy at Singular Bank.
Scholtes noted, “Corporate fundamentals are healthy, first quarter results have substantially surprised on the upside, and there’s plenty of cash to be invested.”
“This deescalation is much more positive than anticipated (GSe: 54% U.S. on China tariffs and 34% China on U.S. tariffs) and the market is reacting as such. We are seeing a clear reversal in short USD positions as U.S. recession risks reduce (GSe was 45%!) and risk-on sentiment rises. DXY rallied over 1%, S&P futures surged 3%, 10y UST rose to 4.43%, gold tumbled ~3%,” Goldman analyst Yichin Tsai told clients.
S&P 500 futures are up 3%, and Nasdaq futures are up 4%. European stocks are in the green.
The move toward lower tariffs and easing trade tensions between the world’s two largest economies follows Sunday’s negotiations, during which both sides reported making “substantial progress.”
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