In a significant move to ease ongoing trade tensions, the United States and China have agreed to substantially reduce tariffs on each other's goods for a 90-day period. The agreement, announced on May 12, 2025, follows high-level negotiations in Geneva and marks a notable de-escalation in the prolonged trade conflict between the world's two largest economies.

Under the terms of the deal, the U.S. will lower its tariffs on Chinese imports from 145% to 30%, while China will reduce its tariffs on U.S. goods from 125% to 10%. Additionally, China has committed to suspending or canceling non-tariff measures previously imposed on U.S. products. Both nations have also agreed to establish a permanent dialogue mechanism to prevent future trade escalations.

U.S. Treasury Secretary Scott Bessent emphasized the desire for balanced trade, stating, "We want more balanced trade, and I think both sides are committed to achieving that." He acknowledged the temporary nature of the agreement and indicated that more complex negotiations lie ahead.

Chinese Vice-Premier He Lifeng described the talks as "sincere, deep, and constructive," highlighting the importance of dialogue in resolving trade disputes.

The announcement of the tariff reduction agreement led to significant gains in global markets. The S&P 500 and Nasdaq indices rose 2.9% and 4.1%, respectively, reflecting investor optimism. European companies impacted by the trade war, such as Maersk and luxury brands like LVMH and Kering, also saw a surge in share prices.

The U.S.-China trade war began in early 2018 when the Trump administration imposed tariffs on Chinese imports, citing unfair trade practices and intellectual property theft. China retaliated with tariffs on U.S. goods, leading to a series of escalating measures that disrupted global supply chains and economic growth. By 2025, tariffs had reached unprecedented levels, with the U.S. imposing rates as high as 145% on Chinese goods and China responding with tariffs up to 125% on U.S. products.

The reduction in tariffs is expected to lower prices for consumers in both countries, particularly in sectors like apparel, electronics, and automobiles. The agreement provides temporary relief for businesses affected by the trade war, allowing for more stable planning and investment. The truce may signal a shift towards more cooperative international trade relations, potentially influencing other ongoing trade disputes.

However, officials have emphasized the temporary nature of this agreement and acknowledged that more complex negotiations lie ahead. The establishment of a permanent dialogue mechanism is seen as a positive step towards preventing future trade escalations.

The U.S.-China agreement to reduce tariffs marks a significant, albeit temporary, de-escalation in trade tensions between the world's two largest economies. While the immediate market reactions have been positive, the long-term implications remain uncertain, with both nations acknowledging that more complex negotiations lie ahead.