U.S. and China Reach Deal to Cut High Tariffs on 90-Day Terms

What Happened?

China and the U.S. have agreed on Monday to roll back on each other's trade levies for an initial 90-day period.

The announcement marks a surprising breakthrough to de-escalate a trade war that has heavily impacted global markets.

In a joint statement, the world’s two largest economies detailed 'substantial progress' in trade negotiations held in Geneva, Switzerland, over the weekend.

Both sides acknowledged the importance of a sustainable, long-term, mutually beneficial economic and trade relationship.

Each side agreed to lower its reciprocal tariffs by 115% while retaining an additional 10% tariff set to take effect by May 14.

The U.S. agreed to drop its 145% tax to 30% while China agreed to lower its 125% tariff rate on U.S. goods to 10%.

According to the White House, the additional 10% tariff continues to set a fair baseline.

Other U.S. measures will remain in place for specific Chinese products, including steel and aluminum.

The White House says both sides will take aggressive actions to address the flow of fentanyl related drugs from China to illicit drug producers in North America.

Global investors reportedly rejoiced at the shift in the trade war as the Dow Jones was up 2%.

Oil prices surged more than $1.60 a barrel, and the dollar gained against the euro and the Japanese yen, according to The Associated Press.

Why it Matters

The Trump administration looked to build off momentum gained following its ‘breakthrough’ deal with the U.K. to reduce trade levies.

Treasury Secretary Scott Bessent led recent tariff discussions with Chinese leaders to find similar results to help repair their damaged relationship.

In 2024, the U.S. goods trade deficit with China was the largest with any trading partner, at $295.4 billion.

This agreement, the U.S. said, aims to address those significant imbalances and help deliver lasting benefits to the American people.

Trump had previously suggested reducing but maintaining high levies on China at 80%.

In a post on Truth Social, Trump said the move seemed right, but it was up to Scott Bessent.

He emphasized that closed markets more importantly 'don't work anymore' in response to China shutting out the U.S.

But now the new announcement marks another bilateral agreement that Trump has unveiled since coming to terms with the U.K.

How it Affects You

China's Commerce Ministry spokesperson called the agreement 'an important step by both sides to resolve differences through equal-footing dialogue and consultation.'

It lays the groundwork for both countries to create supportive conditions on the road for the U.S. to correct its debt deficit.

However, Chinese President Xi Jinping's recent remark to become ‘friends of steel’ with Russia's Vladimir Putin is closely being monitored by U.S. officials.

Putin and Xi’s cooperation to unify could still align ideas to 'decisively' counter U.S. influence and put at risk further progress.

The U.S. will still acknowledge its small victory as it looks to encourage rate cuts following the Fed's latest decision over market uncertainty.