The US and China have agreed a deal that will significantly cut tariffs between the two major economies, as part of ongoing trade talks.
US Treasury Secretary Scott Bessent said both countries would lower their tariffs by 115% for 90 days, following talks over the weekend.
US tariffs on Chinese imports will fall from 145% to 30%, while Chinese tariffs on US goods will fall from 125% to 10%.
Last month, President Donald Trump announced a series of steep tariffs affecting nearly all goods imported into the United States. The tariffs sparked turmoil in the financial markets and growing fears of a global recession.
However, Bessent said the consensus from the talks between the US and China is that neither side wants a “decoupling.”
“What had occurred with these very high tariffs was the equivalent of an embargo and neither side wants that. We do want trade, we want more balanced trade and I think that both sides are committed to achieve that,” he said.
The news was welcomed by the markets, with Chinese and Hong Kong stocks both rallying.
Paul Diggle, chief economist at Aberdeen, said: “This is a big deal, we’re seeing a bigger than expected reduction in tariffs come out of the US-China talks. With talks continuing, the key issues are whether a full deal to lower tariffs permanently in exchange for mutually beneficial concessions can be agreed. We think probably yes, but at tariff levels which, while well down from the peaks, will be up from where they were at the start of Trump’s second term.”
Diggle said President Trump “clearly realised” that an effective embargo on US-China trade is not economically sustainable.
“The US administration is in need of “wins”, to shift market sentiment and public polling about the economy. In the US, there has been a clear hit to the confidence data amid the spike in uncertainty, although this will now fade somewhat. Away from financial markets, in the real economy, businesses will still be delaying investment decisions. However, this probably reduces some of the recession risks,” he added.
Stuart Rumble, head of investment directing, Asia Pacific, at Fidelity International, commented: “Although the reductions are temporary, they represent a notable shift in the overall effective tariff burden. The high US-China tariff regime has already caused major disruption, reducing bilateral trade between the world’s two largest economies and increasing the risk of a broader global slowdown. While neither economy is currently near a breaking point, a meaningful reduction in overall tariffs helps ease that risk.
“The US administration is likely to continue supporting demand through extended tax relief and other fiscal measures aimed at supporting household spending. China, having spent years preparing for renewed trade tensions by reducing reliance on US exports, also retains the capacity to expand domestic stimulus. These developments, coupled with lower trade barriers, should be supportive for both equity and credit markets.”
However, some industry commentators warned that lingering uncertainty remains over whether longer-term progress is likely.
George Lagarias, chief economist at Forvis Mazars, said: “Despite a very positive market reaction to the US-China pause it would be premature to celebrate a breakthrough in the global trade impasse.
“Time will show whether the global supply chain is robust enough to sustain such uncertainty without a costly and inflationary adjustment to cover uncertain outcomes. A 10% tariff base scenario between the US and the rest of the world, is still an adverse economic outcome.”
Lindsay James, investment strategist at Quilter, added: “This news is good given where we were, but there is still a lingering question over whether sustained progress is likely. We have seen tariffs suspended only to be reintroduced after subsequent negotiations weren’t seen to be progressing adequately, and early trade deals have been announced with fanfare only to be later ripped up. Furthermore, with this deal in place for just 90 days, lack of any concrete progress will likely just ramp up market tensions once again.
“Whilst companies will no doubt take advantage of this semi hiatus in order to replenish stock, uncertainty lingers and tariffs still remain considerably higher than at the start of this year. Investors will be pleased to see negotiations seemingly making progress, however, a degree of cynicism is likely to remain given Trump’s previous form, and the fact the deadline for ‘reciprocal tariffs’ on many other countries remains firmly in place, for now.”
