US and China have agreed to slash tariffs for 90 days, avoiding a potential economic crisis while giving markets a temporary reprieve.

At a Glance

• US and China agreed to pause most tariffs for 90 days, reducing US tariffs on Chinese imports to 30% from 145% and China’s tariffs to 10% from 125%
• Treasury Secretary Scott Bessent led the US delegation, emphasizing that neither side wants economic decoupling
• US equity markets responded positively with significant gains in major indexes
• President Trump plans to speak with Chinese President Xi Jinping soon about continuing negotiations
• Automotive tariffs remain in place despite the broader tariff pause

Temporary Truce Calms Markets

The United States and China have reached a significant agreement to temporarily reduce tariffs that had threatened to escalate into a full-blown trade war. Treasury Secretary Scott Bessent, who led the US delegation in the Geneva talks, announced the 90-day pause that will reduce US tariffs on Chinese imports to 30% from a potential 145% while China’s tariffs will drop to 10% from a threatened 125%.

The agreement provides breathing room for further negotiations while preventing immediate economic harm to both nations’ economies and consumers, though it falls short of resolving all trade tensions.

US equity markets reacted with enthusiasm to the news, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all posting significant gains. Retailers and technology companies with substantial Chinese manufacturing exposure saw particularly strong stock increases.

Companies like Amazon, Apple, and Tesla all jumped on news of the tariff pause, reflecting investor relief that a potential trade war had been averted for the time being. The positive market reaction underscores the importance of US-China trade to the broader economy.

*HSL Prime Research*

*Opening Bell – Morning Commentary*

*American Stocks Advance on AI Chip Regulations, Progress on Trade Talks, Dovish FOMC, Robust Earnings and Expanding Consumer Credit.*

U.S. stocks advanced Wednesday in choppy trading, closing higher after semiconductor…

— Devarsh Vakil (@Devarsh_Vakil) May 8, 2025

Strategic Retreat Prevents Economic Damage

Both nations made calculated decisions to step back from the brink of a trade confrontation that could have had devastating economic consequences. The Yale Budget Lab reported that US consumers had already been facing an effective tariff rate of 17.8%, with a projected $110 billion annual impact on US GDP if tariffs had increased further. Federal Reserve Chair Jerome Powell had previously warned that the tariff “shock hasn’t hit yet,” suggesting that the worst economic impacts would have been felt in the coming months without this agreement.

“The consensus from both delegations this weekend is neither side wants a decoupling, And what had occurred with these very high tariffs … was the equivalent of an embargo, and neither side wants that. We do want trade.”, Treasury Secretary Scott Bessent said.

The Treasury Department collected $16 billion in tariff revenue in April alone, a 130% increase from March, highlighting the already substantial financial impact of existing tariffs. The agreement allows both countries to maintain some leverage while preventing the most extreme economic scenarios. Secretary Bessent indicated that a 10% tariff level represents a “floor” and 125% a “ceiling” for future US-China trade policy, signaling that the US intends to maintain pressure while leaving room for negotiation.

Selective Protection Remains

Despite the broad tariff pause, several key sectors remain protected by existing tariffs. Former President Biden’s 100% tariffs on Chinese electric vehicle imports remain in effect, as do President Trump’s 25% tariffs on foreign automobiles. This selective approach allows the administration to maintain protection for strategically important industries while easing broader trade tensions. Auto stocks nonetheless surged following the announcement, suggesting investors believe even these protected sectors will benefit from improved US-China relations.

Online retailers like Temu and Shein received a temporary reprieve from the tariff pause but still face potential future duties. These companies have rapidly gained market share in the US, raising concerns about fair competition with domestic retailers. The administration appears to be balancing consumer interests in low-priced goods against protecting American businesses from what some consider unfair foreign competition. President Trump has described the negotiations as a “breakthrough” and plans to speak with Chinese President Xi Jinping soon.

Global Economic Interconnections

The negotiations underscore the complex interdependence between the world’s two largest economies. The temporary agreement acknowledges this reality while giving both sides time to address deeper structural issues. The talks occurred alongside other significant trade developments, including a newly announced US-UK trade deal expected to boost American agricultural exports. Meanwhile, the European Union has threatened tariffs on US products if separate trade negotiations fail, highlighting the global nature of today’s trade relationships.

Oil and commodity markets also rallied following the tariff pause announcement, reflecting relief across multiple economic sectors. The pause provides crucial stability for global supply chains that have already faced significant disruption in recent years from the pandemic, regional conflicts, and previous trade tensions. For American consumers and businesses, the agreement offers temporary certainty while longer-term trade relationships continue to evolve through ongoing negotiations over the coming 90 days.