A Real Liberation Day! Markets soar as US-China trade war is put on ice, well almost

After intensive negotiations both countries will lower reciprocal tariffs.

PUBLISHED MAY 12, 2025

Bessent described the talks as marked by “great respect” and emphasized that neither side wants an economic decoupling.

Washington D.C.: The United States and China have agreed to a significant 90-day pause in their escalating trade war, announcing a dramatic reduction in tariffs that has sent global stock markets soaring and eased fears of a prolonged economic standoff between the world’s two largest economies.

After intensive negotiations in Geneva, US Treasury Secretary Scott Bessent and Chinese officials revealed that both countries will lower reciprocal tariffs by 115 percentage points for the next three months.

The US will cut tariffs on Chinese imports from 145% to 30%, while China will reduce its duties on US goods from 125% to 10%. However, a 20% US tariff related to Chinese fentanyl exports will remain in place.

Bessent described the talks as marked by “great respect” and emphasized that neither side wants an economic decoupling. “The consensus from both delegations this weekend was neither side wants a decoupling,” he told reporters.

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The announcement triggered a global market rally. Wall Street futures surged, with the Dow Jones Industrial Average up 2.5% in pre-market trading and the S&P 500 and Nasdaq futures rising by over 3%. European indices also climbed, with Germany’s DAX and France’s CAC 40 both gaining more than 1%. In Asia, Hong Kong’s Hang Seng index jumped nearly 3%.

The yuan hit a six-month high, reflecting renewed confidence in China’s economic outlook. Analysts at ING and Deutsche Bank noted that the scale of the tariff reduction exceeded market expectations and could help stabilize global supply chains and trade flows.

The trade war had already inflicted significant pain on both economies. Chinese exports had plunged, and the US recorded its first quarterly GDP contraction since 20224. Up to 16 million jobs were at risk in China, while American consumers faced rising inflation and supply shortages.

Chinese officials welcomed the deal, calling it “in the interests of both nations and the common interest of the world". They urged the US to continue working toward a permanent solution and to “completely correct the erroneous practice of unilateral tariff hikes”.

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Despite the breakthrough, experts cautioned that the agreement is only a temporary truce. Wang Wen, head of the Chongyang Institute for Financial Studies at Renmin University, called it “an unexpected achievement", but warned it does not resolve the deeper structural tensions between the two countries.

Both sides have agreed to continue talks, with working-level consultations planned in the coming weeks. The joint statement emphasized a commitment to “mutual openness, continuous communication, cooperation and mutual respect”.

Market analysts believe the 90-day pause offers a crucial window for further negotiations and could set the stage for a broader deal. “This is a big deal,” said Paul Diggle, chief economist at Aberdeen, noting that the average US tariff on Chinese goods is now down to 27%, from a peak of 28%.