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The US and China have agreed to lower tariffs for the next 90 days in a major de-escalation of the trade war between the world’s two largest economies.
As part of an agreement hammered out in Geneva over the weekend, the US will lower tariffs on Chinese goods to 30 per cent from 145 per cent and China will reduce duties on US imports to 10 per cent from 125 per cent. China said it would also “suspend or cancel” non-tariff measures taken against the US.
The agreement pulls both sides at least temporarily back from the brink of a mutually damaging hard decoupling of their economies that could undermine growth prospects and fuel inflation in the US and job losses in China.
Global stocks extended their gains after the announcement, with S&P 500 futures up 2.8 per cent. The US dollar rallied 0.7 per cent against a basket of its peer currencies while gold, a haven asset, fell 2.3 per cent.
“We want more balanced trade, and I think both sides are committed to achieving that,” Scott Bessent, US Treasury secretary, said at a briefing in Geneva on Monday. “Neither side wants a decoupling.”
China released the joint statement with the US simultaneously. “This move meets the expectations of producers and consumers . . . aligning with the interests of both nations and the common global interest,” China’s ministry of commerce said.
Washington and Beijing have been locked in an escalating trade war since early April, when Trump imposed additional tariffs on Chinese imports, drawing retaliatory measures from Beijing.
The punitive duties have damaged trade between the countries, with Bessent acknowledging last month that the situation was unsustainable.
While the agreement marks just the first step towards reaching a more permanent deal, it represents the first sign of tensions easing between the two economic superpowers.
Tai Hui, Apac chief market strategist at JPMorgan Asset Management, said the size of the tariff cut was “larger than expected”. “This reflects both sides recognising the economic reality that tariffs will hit global growth and negotiation is a better option.”
Bessent and US trade representative Jamieson Greer represented the White House in the Geneva talks, with Chinese vice-premier He Lifeng leading Beijing’s delegation.
Ahead of the talks in Geneva, Bessent had warned that the level of tariffs between the US and China amounted to an effective trade “embargo”.
US business leaders including JPMorgan chief executive Jamie Dimon had in recent weeks urged Beijing and Washington to hold talks, as signs of the economic damage from the stand-off mounted.
In a meeting with Trump, the chief executives of Walmart and Target warned that the tariffs would lead to empty shelves in their stores.
But until recently, there were few signs that either country was willing to negotiate, with Beijing officials accusing the US administration of bullying and vowing not to capitulate.
In contrast to increasingly hostile comments particularly from Beijing ahead of the negotiations, both sides emphasised the co-operative atmosphere of the talks and the US held out the possibility of an agreement on stopping the flows of fentanyl precursors from China into the country.
“Both the Chinese and United States agreed to work constructively together on fentanyl and there’s a positive path forward there as well,” Greer said.
Beijing’s ministry of commerce did not mention fentanyl but it said: “It is hoped that the United States will continue to work with China . . . and jointly inject more certainty and stability into the world economy.”
Bessent sought to blame the Biden administration for the breakdown in relations with China since the US tariff announcements, saying it had allowed communication channels to atrophy. This was despite the fact that Biden officials had re-established various committees to discuss trade-related matters after the pandemic.
Additional reporting by William Sandlund in Hong Kong
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