The United States and China have temporarily agreed to lower tariffs on each other’s products, according to a joint statement. This move aims to ease trade tensions and give the world’s two largest economies an additional three months to resolve their differences.
Agreement Details
Combined US tariffs of 145% on most Chinese imports will be reduced to 30% (including tariffs related to fentanyl) by May 14, while China’s 125% duties on US goods will drop to 10%. “We are in agreement that neither side wants to decouple,” stated Treasury Secretary Scott Bessent, adding that they had “a very robust and productive discussion on steps forward on fentanyl” and that talks might lead to “purchasing agreements” by China.
Bessent clarified that the announced tariff reductions don’t apply to sectoral duties imposed on all US trading partners, and tariffs applied on China during the first Trump administration remain in place.
Market Reactions
After the announcement, equity markets in Asia and Europe rose:
- S&P 500 futures jumped 3%
- Oil prices increased
- Treasury yields gained
- The dollar strengthened
- The offshore yuan extended gains against the dollar by approximately 0.5%
China’s Response
According to the official Xinhua News Agency, China has always managed relations with the US based on principles of mutual respect. China is committed to the stable development of relations with the US, stating that imposing pressure and threats is not the appropriate way to engage.
Future Prospects
This announcement represents a step toward de-escalating a tariff war that has caused an immediate decline in trans-Pacific trade. Both countries previously reported “substantial progress” in their talks, which boosted markets and helped Chinese stocks recover losses since President Trump’s “Liberation Day” tariff announcement on April 2.
Trade Representative Jamieson Greer said the US aims for more balanced trade with China and that “our Chinese counterparts clearly came to deal this week.”
The White House initially called the agreement a “trade deal” in a Sunday statement, but it remains unclear what constitutes an acceptable goal for both sides or how long reaching it will take. China previously demanded that the US remove all tariffs imposed this year, which conflicts with the US objective of reducing or eliminating the trade deficit.
History suggests that reaching a detailed agreement could take considerable time, if possible at all. In 2018, both sides also agreed to put their dispute “on hold” after negotiations, but the US soon withdrew from that deal, leading to more than 18 months of additional tariffs and talks before the “Phase One” trade deal was signed in January 2020. Ultimately, China failed to fulfill the purchase commitments in that agreement, and the US trade deficit with China increased dramatically during the pandemic, creating the current trade war.
