U.S., China Slash Tariffs in 90-Day Trade Truce — Evening Brief – 05.12.25
In a rare moment of clarity amid global economic uncertainty, Washington and Beijing have struck a surprise deal to significantly cut tariffs, offering a welcome boost to trade relations in an otherwise volatile environment. The U.S. and China have struck a deal to reduce tariffs on each other’s goods for a 90-day period, effective May 14, 2025. The agreement cuts U.S. tariffs on Chinese imports from 145% to 30% and Chinese tariffs on U.S. imports from 125% to 10%, marking a major step toward easing trade tensions.
The announcement ignited a risk-on rally in equity markets, which traded just 1% below their 2025 highs. The U.S. 10-year Treasury yield climbed seven basis points to 4.45%, its highest in nearly a month, as investors shifted from bonds to stocks. The 2-year Treasury yield, more sensitive to rate expectations, rose nine basis points to 4.00%. The resolution of a key geopolitical uncertainty has fueled market optimism, with traders betting on renewed economic momentum.
Treasury Secretary Scott Bessent, who led the U.S. delegation in Geneva, Switzerland, told reporters that both sides have “substantially moved down the tariff levels” and “neither side wants a decoupling.”
The White House highlighted the deal’s role in addressing trade imbalances, stating on X: “The U.S. goods trade deficit with China was $295.4 billion in 2024—the largest with any trading partner. Today’s agreement works toward addressing these imbalances to deliver real, lasting benefits to American workers, famers, and businesses.”
At 30%, the reduced U.S. tariff is low enough to be absorbed through supply chain adjustments, importer margins, or foreign exchange rates, minimizing consumer price impacts. The tariff revenue is also expected to support the 2026 Budget, a critical priority for driving future growth.
The 30% tariff provides a window for companies to reassess manufacturing strategies. While some may accelerate shifts away from China, the lower rate may not force immediate changes for all. However, with the U.S. negotiating a 10% tariff with the U.K. and maintaining 30% with China, companies may weigh domestic reshoring against cost considerations, given China’s role as a key competitor.
This 90-day truce offers a temporary reprieve from escalating trade barriers, fostering market stability and encouraging strategic planning among businesses. The agreement’s success will depend on whether both nations can sustain dialogue beyond the initial period, with potential implications for global trade dynamics and U.S. economic policy.