After weeks of escalating tension, the United States and China announced on Monday a temporary but significant reduction in the tariffs they had been imposing on each other since April. The move, which both governments call “substantial progress,” represents a 90-day pause in a trade war that had rocked financial markets, triggered manufacturing slowdowns, and raised fears of a global economic downturn.

In a joint statement, the two economic superpowers confirmed they would lower their tariffs by 115 percentage points each: U.S. tariffs on Chinese imports will drop to 30 percent, while Chinese tariffs on U.S. goods will fall to 10 percent. The agreement, set to take effect on May 14, was praised by Chinese officials as being in the “common interest of the world” and by U.S. Treasury Secretary Scott Bessent as “a strong mechanism to avoid further escalation.”

From tariff blitz to de-escalation

Since returning to office in January, President Donald Trump has doubled down on his trade war approach. Tariffs on Chinese goods were raised to as much as 145 percent, including a 20-percent penalty linked to China’s role in producing chemicals used to manufacture fentanyl. China hit back with 125 percent tariffs on U.S. imports.

The result, according to Bessent, was a de facto “embargo” between the two countries. Speaking after the Geneva talks, he acknowledged that much of the economic damage “could have been avoided” had a bilateral consultation mechanism existed earlier.

What the truce includes — and what it doesn’t

While the deal marks a significant de-escalation, it is far from a resolution. Over the next 90 days, U.S. and Chinese officials will hold regular or ad hoc talks in either country or in third-party nations, seeking to address deeper disagreements.

The truce also includes a mutual commitment to cooperate on fentanyl-related issues. However, tariffs tied to fentanyl production remain in place for now, U.S. Trade Representative Jamieson Greer confirmed.

Markets react with optimism

The global financial response was swift and positive. Hong Kong’s stock exchange closed 3% higher, Paris rose by 1.4%, and shares of luxury group LVMH surged by nearly 7%. The dollar strengthened against major currencies, while oil prices jumped approximately 3%.

“The market was not expecting such a big shift in tariffs,” said Kathleen Brooks of XTB. “This is very positive for the global economic outlook.”

Still, some experts warned of continued volatility. Karsten Junius of Bank J. Safra Sarasin noted that markets “could once again be disrupted by more serious obstacles in trade negotiations,” while others pointed out that the 90-day timeframe may not be enough to reach a comprehensive deal.

Underlying tensions persist

While Beijing emerged from the talks declaring victory—analysts like Zhiwei Zhang argued that China achieved significant tariff relief without major concessions—others warned of deeper issues still unresolved.

Wang Wen of Renmin University called the agreement the “biggest easing of tensions” since the trade war began, but emphasized that “uncertainties remain” and that a failure to make progress could lead to a renewed confrontation.

Indeed, structural conflicts remain unaddressed. U.S. sector-specific tariffs on Chinese steel, aluminum, and automobiles are still in effect. Washington also maintains higher overall tariffs on China than other trading partners, signaling continued pressure on Beijing.

Meanwhile, China has filed complaints at the World Trade Organization and targeted U.S. companies with retaliatory measures, including cancelling Boeing aircraft orders, launching antitrust investigations into Google, and labeling PVH Corp. and Illumina as “unreliable entities.” It has also restricted exports of rare earth materials vital to tech and medical industries.

A temporary fix in a long conflict?

Despite this diplomatic breakthrough, the trade war’s long-term consequences are already being felt. China’s trade surplus with the U.S. hit \$295.4 billion in 2024, and analysts expect the tariffs to weigh on China’s 2025 growth target of 5 percent—particularly as the country battles weak domestic consumption and a real estate debt crisis.

In the U.S., the uncertainty surrounding tariffs has sparked a manufacturing slump and contributed to a surprise economic contraction in the first quarter of the year.

While both countries may now seek a more stable path, many observers agree that the underlying issues remain too complex for a quick resolution.

“This truce does not mean the end of the trade war,” said Mark Williams of Capital Economics. “There’s no guarantee that a 90-day pause will turn into a lasting ceasefire.”

With reporting from AFP