In a significant development aimed at easing prolonged 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 held in Geneva, Switzerland.

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%. This mutual reduction marks a notable de-escalation in the trade conflict that has strained economic relations between the two nations since 2018.

U.S. Treasury Secretary Scott Bessent emphasized the collaborative nature of the discussions, stating, "We had very robust discussions. Both sides showed great respect to what was a very positive process." Chinese official media echoed this sentiment, describing the talks as "balanced and beneficial to both sides."

The announcement had an immediate positive impact on global financial markets. Major stock indices, including the S&P 500 and Nasdaq, experienced significant gains, particularly benefiting companies with substantial exposure to the Chinese supply chain. The U.S. dollar also strengthened as concerns over the trade war's impact on the economy began to ease.

Despite the temporary nature of the agreement, it is viewed as a constructive step toward stabilizing economic relations between the U.S. and China. Both nations have expressed optimism about the potential for further cooperation and the resolution of outstanding trade issues during the 90-day period.

However, challenges remain. The truce is temporary and could unravel within 90 days if no long-term agreement is reached, with President Trump threatening renewed tariffs. Structural trade imbalances between the two countries complicate resolution efforts. The market's optimistic response may overlook the fragility of the deal, its non-binding nature, and the unpredictability of Trump’s trade policies. Although short-term relief is evident, lasting economic and trade stability remains uncertain.

In the days following the agreement, Secretary Bessent announced that the U.S. would enforce maximum tariffs on countries not negotiating trade agreements "in good faith." These tariffs could reach or surpass 10%, with some as high as 145%, targeting Chinese goods. This development marks a more aggressive U.S. stance on trade, contrasting with Trump's earlier claims that foreign partners were eager to negotiate.

While the 90-day tariff reduction agreement provides a temporary reprieve and has been met with optimism, it remains to be seen whether this truce will lead to a more comprehensive and lasting resolution of the trade disputes between the United States and China.