US-China Announce Historic 90-Day Tariff Reduction Agreement: Markets Rally

In a significant breakthrough for global trade relations, the United States and China announced a 90-day mutual tariff reduction agreement on May 12, 2025, following high-level negotiations in Geneva, Switzerland. This temporary accord marks the most substantial progress in easing trade tensions between the world's two largest economies in years, triggering an immediate positive response across global financial markets.

Agreement Details: Dramatic Tariff Reductions

The centerpiece of this agreement is the substantial reduction in reciprocal tariffs:

Country	Previous Average Tariff Rate	New Tariff Rate	Duration
United States	145%	30%	90 days
China	125-150%	10%	90 days

These dramatic reductions represent a significant de-escalation from the punitive tariff levels that have characterized the US-China trade war over the past several years. The United States will reduce its tariffs on Chinese imports from an average of 145% to 30%, while China will slash its tariffs on American products from 125-150% down to just 10%.

The temporary nature of this agreement—limited to 90 days—provides a window for both nations to negotiate more permanent solutions to their underlying trade disputes.

High-Stakes Negotiations

The agreement was reached through intensive negotiations led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. Both sides characterized the outcome as "substantial progress" in addressing trade tensions that have roiled global markets and disrupted supply chains worldwide.

Beyond tariff reductions, the United States reportedly pressed for additional concessions, including:

• Lifting of rare earth export restrictions
• Enhanced controls on fentanyl precursor exports
• Greater market access for American companies

While the full scope of these additional negotiations remains confidential, sources indicate they will continue during the 90-day tariff reduction period.

Exclusions and Ongoing Issues

Notably, certain sensitive sectors remain excluded from this agreement:

• Steel and aluminum products
• Automotive components and vehicles
• Select agricultural products

These exclusions suggest that while progress has been made, fundamental disagreements persist on key industrial policies and strategic sectors. Additionally, structural issues including intellectual property protection, technology transfer requirements, and industrial subsidies remain unresolved.

Market Response: Global Rally

Financial markets responded enthusiastically to the announcement:

• U.S. Markets: Nasdaq futures surged over 3.5%, while Dow Jones and S&P 500 futures climbed 1-1.5%
• Asian Markets: Chinese stocks rebounded strongly, with tech and manufacturing sectors leading gains
• Commodities: Oil and iron ore prices rose on expectations of increased trade flows
• Technology Sector: Semiconductor and battery-related stocks experienced particularly sharp gains

The market reaction reflects investor relief at the prospect of reduced trade friction and improved economic certainty. Korean tech giants Samsung Electronics and SK Hynix saw their shares jump significantly, highlighting the global nature of the trade war's impact on supply chains.

Economic Implications

Economists and trade analysts view this agreement as a crucial first step in de-escalating trade tensions:

Positive Impacts:

• Reduced costs for importers and exporters
• Improved business confidence and investment climate
• Potential boost to global GDP growth
• Relief for supply chains disrupted by high tariffs

Cautionary Notes:

• The 90-day limitation creates ongoing uncertainty
• Structural trade issues remain unaddressed
• Excluded sectors continue to face trade barriers
• Risk of reversion if permanent agreement isn't reached

Expert Analysis and Future Outlook

Trade experts emphasize both the significance and limitations of this agreement. While the tariff reductions provide immediate relief to businesses and consumers, the temporary nature and limited scope mean fundamental challenges persist.

Key areas requiring attention in future negotiations include:

• Intellectual property rights protection
• Technology transfer policies
• State subsidies and market access
• Currency manipulation concerns
• Strategic sector competition

The success of this 90-day trial period will likely determine whether a more comprehensive, permanent trade agreement is achievable. Both nations face domestic political pressures that could complicate further negotiations, particularly as the 2026 U.S. midterm elections approach.

Global Trade Implications

This US-China agreement has broader implications for the global trading system:

• Supply Chain Reconfiguration: Companies may reconsider their "China +1" strategies if trade relations stabilize
• Third-Country Effects: Other nations may see reduced competitive advantages from trade diversion
• Multilateral Trade: Success could revive interest in broader trade liberalization efforts
• Geopolitical Relations: Economic cooperation might ease broader strategic tensions

Conclusion

The 90-day tariff reduction agreement between the United States and China represents a pragmatic step toward resolving one of the most consequential trade disputes in modern history. While markets have responded positively to this development, the temporary nature of the agreement and persistent structural issues mean the path to lasting trade peace remains uncertain.

The coming 90 days will be critical in determining whether this breakthrough leads to a comprehensive resolution or merely provides a brief respite in an ongoing economic confrontation. For businesses, investors, and policymakers worldwide, the stakes could not be higher as these negotiations continue to shape the future of global trade relations.