In a major development on May 12, 2025, the United States and China announced a landmark 90-day truce in their ongoing trade war, agreeing to significantly slash reciprocal tariffs. This breakthrough deal marks a hopeful step toward easing one of the most damaging economic conflicts in recent history and has sparked a strong rally in global financial markets.
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Details of the Tariff Reduction Agreement
Following intensive weekend negotiations in Geneva, both nations committed to lowering the tariffs imposed on each other’s goods by more than 100 percentage points. The United States will reduce its additional tariffs on Chinese imports from a combined rate of 145% down to approximately 30% for the next 90 days. China, in turn, will cut its tariffs on American products from 125% to 10%.
While the baseline tariffs imposed before April 2, 2025-including those from previous US administrations-remain in place, the higher reciprocal tariffs that escalated the trade war this year will be suspended during this period. Additionally, both countries agreed to remove or suspend non-tariff countermeasures introduced amid the dispute, further easing trade barriers.
Market Reaction: Optimism and Rally
The announcement of this tariff truce was met with immediate enthusiasm in financial markets worldwide. US stock futures surged, with the Dow Jones rising over 1,000 points and the Nasdaq and S&P 500 futures climbing by 3% or more. European and Asian markets also responded positively, reflecting investor confidence that the risk of a prolonged trade war and potential recession has diminished.
The US dollar strengthened against major currencies, while gold prices, often seen as a safe haven during uncertainty, declined. This market rally underscores the relief felt by investors and businesses alike, as the tariff reductions lower costs and reduce uncertainty for companies heavily reliant on trans-Pacific trade.
Significance for US-China Relations
This 90-day tariff pause signals a willingness on both sides to engage in constructive dialogue and avoid further escalation. US Treasury Secretary Scott Bessent and US Trade Representative Ambassador Jamieson Greer, along with Chinese Vice Premier He Lifeng, emphasized the importance of continuing negotiations to resolve deeper issues such as intellectual property rights, technology transfer, and market access.
While the truce does not eliminate tariffs entirely, it establishes a framework for ongoing discussions aimed at building a more stable and mutually beneficial trade relationship. Both sides have expressed a shared interest in avoiding decoupling and promoting equitable trade.
Challenges and Outlook
Despite the positive momentum, the agreement is temporary and leaves many contentious issues unresolved. The baseline tariffs remain, and certain tariffs, such as those on fentanyl-related products and specific sectors like steel and aluminum, continue to apply.
Domestic political pressures in both countries may influence the pace of future negotiations. The next three months will be critical in determining whether this tariff pause can be extended or lead to a comprehensive trade deal, or whether tensions will resurface.
Conclusion
The US-China tariff truce and the resulting market rally represent a hopeful pause in a long-standing trade conflict that has disrupted global commerce and heightened economic uncertainty. By slashing duties and committing to further talks, both nations have taken a significant step toward restoring stability and fostering cooperation. As the world watches closely, this 90-day window offers a vital opportunity to move beyond confrontation and toward a more balanced and prosperous economic partnership.
This article is based on the latest reports from Reuters, CNBC, CNN, and other leading news sources covering the May 2025 US-China trade negotiations.