The United States and China agreed Monday to slash their massive recent tariffs, restarting stalled trade between the world’s two biggest economies and setting off a rally in global financial markets.
But the de-escalation in President Donald Trump’s trade wars did nothing to resolve underlying differences between Beijing and Washington. The deal lasts 90 days, creating time for U.S. and Chinese negotiators to reach a more substantive agreement. But the pause also leaves tariffs higher than before Trump started ramping them up last month. And businesses and investors must contend with uncertainty about whether the truce will last.
U.S. Trade Representative Jamieson Greer said the U.S. agreed to drop the 145% tax Trump imposed last month to 30%. China agreed to lower its tariff rate on U.S. goods to 10% from 125%.
A deal averts a total blockade
Greer and Treasury Secretary Scott Bessent announced the tariff reductions at a news conference in Geneva.
The officials struck a positive tone as they said the two sides had set up consultations to continue discussing their trade issues. Bessent said that the triple-digit tariffs the two countries imposed on each other last month — in an escalation of tensions Trump started — amounted to “the equivalent of an embargo, and neither side wants that. We do want trade.’'
The delegations, escorted around town and guarded by scores of Swiss police, met for at least a dozen hours on both days of the weekend at a sunbaked 18th-century villa that serves as the official residence of the Swiss ambassador to the United Nations in Geneva.
At times, the delegation leaders broke away from their staffs and settled into sofas on the villa’s patios overlooking Lake Geneva, helping deepen personal ties in the effort to reach a much-sought-after deal.
Finally, a deal
The 30% levy that America is now imposing on Chinese goods includes an existing 20% tariff intended to pressure China into doing more to prevent the synthetic opioid fentanyl from entering the United States. It also includes the same 10% “baseline’’ tariff Trump has slapped on imports from most of the world’s countries. The 30% tax comes on top of other levies on China, including some left over from Trump’s first term and kept by former President Joe Biden.
Trump had ratcheted the combined tariff to 145% last month, furious that China was retaliating, before backing down Monday.
China’s Commerce Ministry called the agreement an important step for the resolution of the two countries’ differences and said it lays the foundation for further cooperation.
“This initiative aligns with the expectations of producers and consumers in both countries and serves the interests of both nations as well as the common interests of the world,” a ministry statement said.
China hopes the U.S. will stop “the erroneous practice of unilateral tariff hikes” and work with China to safeguard the development of economic and trade relations, injecting more certainty and stability into the global economy, the ministry said.
The joint statement by the two countries said China also agreed to suspend or remove other measures it has taken since April 2 in response to the U.S. tariffs. China has increased export controls on rare earths, including some critical to the defense industry, and added more American companies to its export control and unreliable entity lists, restricting their business with and in China.
Markets rally as two sides de-escalate
The full impact on the complicated tariffs and other trade penalties enacted by Washington and Beijing remains unclear. And much depends on whether they will find ways to bridge longstanding differences during the 90-day suspension.
Bessent said in an interview with CNBC that U.S. and Chinese officials will meet again in a few weeks.
But investors rejoiced as trade envoys from the world’s two biggest economies blinked.
Futures for the S&P 500 jumped 2.6% and the Dow Jones Industrial Average was up 2%. Oil prices surged more than $1.60 a barrel, and the dollar gained against the euro and the Japanese yen.
“This is a substantial de-escalation,” said Mark Williams, chief Asia economist at Capital Economics. But he warned “there is no guarantee that the 90-day truce will give way to a lasting ceasefire.”
Dani Rodrik, an economist at Harvard University, said that the two countries had stepped back “from a needless trade war’’ but that U.S. tariffs on China remain high at 30% “and will mainly hurt U.S. consumers.’’
“Trump has obtained absolutely nothing from China for all the chaos he generated. Zilch,’’ Rodrik wrote, posting on Bluesky.
Craig Singleton, senior director of the China program at the Foundation for Defense of Democracies, said the speed at which the agreement came about suggested that “both sides were more economically boxed in than they let on.”
“For China, the economic pain was real: Rising unemployment, capital flight, and export orders falling at their fastest rate in nearly two years,” Singleton said. “For Trump, markets mattered, and this deal gives him a win without abandoning leverage.”
The announcement by the U.S. and China sent shares surging, with U.S. futures jumping more than 2%. Hong Kong’s Hang Seng index surged nearly 3%, and benchmarks in Germany and France were both up 0.7%
“The drop from sky-high to merely high tariffs, along with the uncertainty about the path of future tariffs, will still serve as a constraint on trade and investment flows between the two economies,” said Eswar Prasad, professor of trade policy at Cornell University.
“Nevertheless, it is a positive omen for the world economy that U.S. tariffs might eventually end up as significant trade barriers but not insurmountable walls,’’ he said.
Jay Foreman — CEO of Basic Fun, the Florida-based company behind such toys as Care Bears and Tonka trucks — said he was relieved to see the tariff rate on Chinese goods now down to 30%. But he wants that to drop to 10%.
Foreman said he’d just advised his team in China to release its toy shipments, which had been paused since early April. Before Monday’s deal, he said, he thought he’d have to double prices — but they’ll still go up, by 10% to 15% for the third and fourth quarters.
“It’s like they tried to feed us a rotten egg sandwich and hope we’re happy to drink spoiled milk instead,” Foreman said.
Among the many downstream effects of the US-China tariff pause announcement is the impact on the Fed Funds rate.
Odds of rate cuts in June and July are falling fast. Futures are predicting a greater than 50% chance of the Fed keeping rates flat through July. A September cut would be the first opportunity, but those odds are also softening.
This is surprising from the standpoint that easing trade tensions should make it easier for the Federal Reserve to look through any short-term rise in inflation. But that doesn't seem to be the case.
With lower trade tensions, the recession risk may disintegrate. While we are a ways off from anything that approaches certainty on the labor market or inflation forecasts, this is catnip for markets (S&P +3%).
👀What to watch next:
Shipping and manufacturing orders.
If businesses believe this is a head fake or likely to fall apart, then these numbers won't recover. Even if shipping from China resumes semi-normally, it cannot erase the last month's reduced activity. The trade interruption will have a real impact on businesses and consumers over the next few months.
The April Consumer Price Index report will be released tomorrow and will offer insight into which goods and services are experiencing the biggest price changes.
ON-AND-OFF APPROACH
President Donald Trump’s agreement with China to temporarily slash tariffs for 90 days offered the world a bit of welcome relief. But what persists is a sense of uncertainty and the possibility that some damage from the trade war could already be done.
The Trump administration agreed after talks this weekend in Switzerland to pare back its 145% in tariffs charged on imports from China to 30%. The Chinese government chose to reduce its retaliatory import taxes on U.S. goods from 125% to 10% while the sides continue to negotiate.
Trump declared the de-escalation of the trade war a victory, saying he would soon chat with Chinese President Xi Jinping about how to preserve the financial relationship between the world’s two largest economies.
Regardless, the tariffs are now elevated from when Trump took office, and the scramble to respond to the White House’s mix of threats and olive branches might leave CEOs, investors, and consumers uneasy and unwilling to take risks.
Trump is going to keep tariffing
The global economy is not going back to January 19, 2025, the day before Trump became president. Even if he routinely changes the tariff rates, the U.S. president and his aides have made it clear that most imports will be taxed at a minimum of roughly 10%.
The 10% figure has been Trump’s baseline. He gave it to most countries for a 90-day negotiating period after his April 2 “Liberation Day” tariff rollout caused a panic in the financial markets. He kept the 10% rate as part of the framework that the United Kingdom announced last week. And Trump’s new 30% tariff on Chinese goods includes 20% tied to China’s role in fentanyl and the 10% baseline applied elsewhere.
“We have many deals coming down the line,” Trump said on Friday. “But we always have a baseline of 10%.”
But Trump has also hinted that there could be exceptions. Sectoral tariffs of 25% on autos, steel and aluminum are still in place, with Trump stressing that pharmaceutical drugs will also soon face import taxes.
Trump said Monday that he told House Speaker Mike Johnson and Senate Majority Leader John Thune to include tariff revenues when looking at how to pay for their planned income tax cuts.
Reality can now anchor negotiations
Taisu Zhang, a law professor who studies comparative legal and economic history at Yale University, said the chaos from last month probably was not for nothing. Both countries were testing their strengths, with Trump stressing the importance that foreign companies placed on accessing U.S. consumers and China emphasizing its resilience to an external shock.
“As recently as February, both sides probably harbored unrealistic assumptions about each other’s economic or political weaknesses or intentions,” Zhang said. “The Americans had an exaggerated sense of their own bargaining power to begin with, and the Chinese may have had an exaggerated sense of their security from American economic pressure.”
“The best thing to come out of this agreement, therefore, seems to be a stronger sense of reality on both sides,” Zhang said. In that, Zhang said, it looks like the goals of the two countries align, with China consuming more and the U.S. manufacturing more.
The stock market loved the news and could shape what happens next
The world has seen that Trump remains wary of getting on the wrong side of the financial markets. When his initial April 2 announcement of higher tariff rates fueled a selloff in stocks and rising interest rates on U.S. debt, he retreated by announcing his 90-day suspension of tariffs so that talks could proceed with nations other than China.
The S&P 500 stock index jumped 3.3% in Monday trading, helping validate the Trump administration’s decision to lower tariff rates so that talks could proceed.
Beware of the ‘bullwhip’ effect
If Trump’s 145% tariffs caused fewer boats to leave for U.S. ports, the prospect of a slightly lower tariff rate might cause a stampede of shipping containers to flow across the ocean from China. The possibility of fewer ships from China had raised the risk of empty shelves at U.S. stores, a phenomenon last seen during the COVID-19 pandemic that led to spiking prices and voter frustration.
But with the fast pivot to a lower tariff rate, the freight sitting in warehouses and factories in Asia can now be hurried onto cargo ships, causing the price of transporting those goods to rise sharply and producing congestion at ports. There is “absolutely” going to be a bullwhip effect in which the shortages now turn into a rush of new supply as companies try to beat the prospect of higher tariffs returning, said Michael Starr, vice president of growth at the logistics company Zencargo.
“They can now start shipping for the holiday season,” Starr said. “They’re going to rush as many orders out in these 90 days as possible. And yes, the vessels cannot come back as quickly into service as the freight can.”
There’s little to no certainty about what’s ahead
University of Michigan economist Justin Wolfers stressed that many people would see the 90-day talks as a short-term positive because “moving tariffs from prohibitive and insane to merely very high is good news.” But over the course of the past four months of the Trump administration, the president has floated 100% import taxes on movies made overseas, threatened Canada and Greenland with annexation, and shown a relative indifference to the possible financial pain from his actions.
“So if you were to look back over those last 120 days, you would say, for as much optimism as you might feel right now, it would be crazy to feel optimistic about anything,” Wolfers said.
The U.S. economy could still end up hurting
A problem for Trump is that businesses have already made plans for the 145% tariffs he announced earlier and might be hesitant to revise them until any permanent policies are set.
It’s possible that a resilient job market can take the hits from tariffs without cracking much, just as it survived Federal Reserve rate hikes under Democratic President Joe Biden that were designed to bring down inflation. But 30% tariffs are still a cost for businesses and consumers to absorb, and that might prevent many companies from hiring and expanding their operations.
“Maybe some of those could live with 30%, at least for a while,” said Kevin Rinz, a senior fellow at the Washington Center for Equitable Growth. “But in 90 days, what are tariffs with China going to be? Will they go up or down from 30%? If up, how far? I have no idea, and if I were a firm that relies on imports from China, that would cause paralysis.”
Rinz, who worked as an economist in the Obama and Biden administrations, tried to model the impact of the labor market based on Trump’s own premise that any short-term pain from tariffs would eventually result in long-term gains. His analysis found a drop in hiring.
“It turns out, that scenario looks a lot like a recession over the next few years,” Rinz said.
American businesses that rely on Chinese goods reacted with muted relief Monday after the U.S. and China agreed to pause their exorbitant tariffs on each other’s products for 90 days.
Importers still face relatively high tariffs, however, as well as uncertainty over what will happen in the coming weeks and months. Many businesses delayed or canceled orders after President Donald Trump last month put a 145% tariff on items made in China.
Now, they’re concerned that a mad scramble to get goods onto ships will lead to bottlenecks and increased shipping costs. The temporary truce was announced as retailers and their suppliers are looking to finalize their plans and orders for the holiday shopping season.
“The timing couldn’t have been any worse about placing orders, so turning on a dime to pick back up with customers and our factories will put us severely behind schedule,” said WS Game Company owner Jonathan Silva, whose Massachusetts business creates deluxe versions of Monopoly, Scrabble, and other Hasbro board games.
Silva said the 30% tariff on Chinese imports still is a step in the right direction. He has nine containers of products waiting at factories in China and said he would work to get them exported at a lower rate.
U.S. Trade Representative Jamieson Greer said the U.S. agreed to lower its 145% tariff rate on Chinese goods by 115 percentage points, while China agreed to lower its retaliatory 125% rate on U.S. goods by the same amount. The two sides plan to continue negotiations on a longer-term trade deal.
National Retail Federation President and CEO Matthew Shay said the move was a “critical first step to provide some short-term relief for retailers and other businesses that are ordering merchandise for the winter holiday season.”
The news sent the stock market and the value of the dollar soaring, a lift that eluded business owners confronting another dizzying shift.
Marc Rosenberg, founder and CEO of The Edge Desk in Deerfield, Illinois, invested millions of dollars to develop a line of $1,000 ergonomic chairs but delayed production in China that was set to begin this month, hoping for a tariff reprieve.
Rosenberg said it was good that U.S.-China trade talks were ongoing, but that he thinks the 90-day window is “beyond dangerous” since shipping delays could result in his chairs still being en route when the temporary deal ends.
“There needs to be a plan in place that lasts a year or two so people can plan against it,” he said.
Jeremy Rice, the co-owner of a Lexington, Kentucky, home-décor shop that specializes in artificial flower arrangements, said the limited pause makes him unsure how to approach pricing. About 90% of the flowers House uses are made in China. He stocked up on inventory and then paused shipments in April.
“Our vendors are still kind of running around juggling, not knowing what they’re gonna do,” Rice said. “We ordered in what we could pre-tariff, and so there’s stock here, but we’re getting to the point now where there are things that are gone and we’re going to have to figure out how we’re gonna approach it.”
“There’s no relief,” he added. “It’s just kind of like you’re just waiting for the next shoe to drop.”
Before Trump started the latest U.S. tariff battle with China, Miami-based game company All Things Equal was preparing to launch its first electronic board game. Founder Eric Poses said he spent two years developing The Good News Is..., a fill-in-the-blank game covering topics like politics and sports. He plowed $120,000 into research and development.
When the president in February added a 20% tariff on products made in China, Poses started removing unessential features such as embossed packaging. When the rate went up to 145%, he faced two options: leave the goods in China or send them to bonded warehouses, a storage method that allows importers to defer duty payments for up to five years.
Poses contacted his factories in China on Monday to arrange the deferred shipments, but with his games still subject to a 30% tariff, he said he would have to cut back on marketing to keep the electronic game priced at $29.99. With other businesses also in a rush to get their products, he said he is worried he won’t be able to his into shipping containers and that if he does, the cost will be much more expensive.
“It’s very hard to plan because if you want to go back to production in a couple of months, then you’re worried about what will the tariff rate be when it hits the U.S. ports after that 90-day period,” Poses said.
Jim Umlauf’s business, 4Knines, based in Oklahoma City, makes vehicle seat covers and cargo liners for dog owners and others. He imports raw materials such as fabric, coatings and components from China.
Umlauf said that even with a lower general tariff rate, it’s hard for small businesses to make a profit. He thinks the U.S. government should offer small business exclusions from the tariffs.
“I appreciate any progress being made on the tariff front, but unfortunately, we’re still far from a real solution — especially for small businesses like mine,” Umlauf said. “When tariffs exceed 50%, there’s virtually no profit left unless we dramatically raise prices — an option that risks alienating customers.”
Zou Guoqing, a Chinese exporter who supplies molds and parts to a snow-bike factory in Nebraska as well as fishing and hunting goods to a U.S. retailer in Texas, also thinks the remaining 30% tariff is too high to take comfort in.
With the possibility that Washington and Beijing will negotiate over the 20% tariff Trump imposed due to what he described as China’s failure to stem the flow of fentanyl, Zou said he would wait until the end of May to decide when to resume shipments to the U.S.
Silva, of WS Game Company, said he planned to begin placing his holiday season orders this week but won’t be as bold as he might have been if the ultra-high tariff had been suspended for more than 90 days.
“We will order enough to get by and satisfy the demand we know will be there at the increased pricing needed, but until we get a solid foundation of a long-term agreement, the risks are still too high to be aggressive.”