Summary
- The US and China agree to slash tariffs on each other’s goods for 90 days in a major de-escalation of their trade war
- US Treasury Secretary Scott Bessent says both sides will cut tariffs by 115% from Wednesday
- It means US tariffs on Chinese imports will fall to 30%, while Chinese tariffs on US goods will fall to 10%
- It is a bigger cut than expected, writes our correspondent Theo Leggett – but 30% is still a high tariff
- Our correspondent in Beijing, Laura Bicker, says Chinese officials were becoming concerned at the impact of US tariffs. Bessent also acknowledged last month that the situation was unsustainable
- The breakthrough agreement comes after both sides held trade talks in Geneva over the weekend
US-China deal leaves Beijing ‘psychologically stronger’,
Despite the US and China calling this a joint agreement, people in Beijing will interpret it as the Trump administration walking back from the tariffs, says Janka Oertel, director of the Asia programme at the European Council on Foreign Relations.
“We are back to square one, now negotiating can begin. The outcome is uncertain but China is in a psychologically stronger position now than before,” Oertel says.
However, Oertel says “it’s not really a deal yet” without seeing details on fresh commitments from Beijing on key issues like market access or expanded imports of US goods.
What does this truce suggest about the future strategy of US tariffs?
That’s a question many will be pondering this morning as everyone digests the truce announcement between the world’s two biggest economies.
Economists at Deutsche Bank have suggested the lowering of tariffs, and last week’s UK-US deal on them, means there’s both “a likely cap and floor” to Trump’s rates of 10 to 30%.
“The UK has one of the least imbalanced relationships with the US and now has a universal tariff rate of 10%. China has one of the most imbalanced relationships and now has a tariff rate of 30,” says George Saravelos, head of FX research at the investment bank.
“It is reasonable that these two numbers now set the bounds of where American tariffs will end up this year, a material increase in visibility from just last week.”
World Trade Organization head welcomes ‘significant step forward’
It’s interesting that these talks between the US and China happened in Geneva.
Switzerland’s neutrality has long lent itself to helping solve major global problems and it is also home to the World Trade Organization (WTO) whose role is to draw up and enforce the rules of global trade.
I understand that head of the WTO, Dr Ngozi Okonjo-Iweala, has been following the talks closely and spoke to Chinese Vice Premier He after the weekend meeting.
In a statement she said she was “pleased with the positive outcome of the talks”, adding that they “mark a significant step forward and, we hope, bode well for the future”.
She underlined how important that is for the entire global economy. Discussions on how to reform the WTO so that’s it better suited to the modern global economy have been going on for some time.
The WTO has been warning that if the global economy were to split into two blocs it could result in a long-term reduction in global real GDP of nearly 7%.
Markets back above ‘liberation day’ level
The news that the US and China will roll back the majority of the swingeing tariffs imposed on each other, at least temporarily, has given stock markets a boost and seen the value of safe haven assets like gold fall.
The benchmark S&P 500 share index in the US is now expected to open above the level it was the day before Donald Trump rocked the world financial system with a universal tariff of 10% and very steep so-called reciprocal tariffs on high exporting countries in Asia.
The 90-day pause that was announced very quickly after markets – including the safe harbour of US government bonds – plunged saw markets recover just over half their losses.
Those losses in US shares will have been fully reversed if markets open in the US at the level they have been trading overnight in Asia.
But some investors are privately concerned that the bounce back in shares is overly optimistic given that trade still has, and will continue to have, significantly more friction, cost and risk.
Shipping giant says US-China deal is ‘a step in right direction’published at 12:1012:10Danish shipping giant Maersk says the US-China agreement to pause tariffs for 90 days is a step in the right direction.Shares in Maersk traded 12.9% higher as of 09:48 GMT (10:48 BST).The firm says it hopes the deal “can lay the foundation for the parties to also reach a permanent deal that can create the long-term predictability our customers need”.”Right now, our customers have gotten 90 days of clarity with reduced tariffs, and we are working hard to help them make the best use of this window,” it adds.
Danish shipping giant Maersk says the US-China agreement to pause tariffs for 90 days is a step in the right direction.
Shares in Maersk traded 12.9% higher as of 09:48 GMT (10:48 BST).
The firm says it hopes the deal “can lay the foundation for the parties to also reach a permanent deal that can create the long-term predictability our customers need”.
“Right now, our customers have gotten 90 days of clarity with reduced tariffs, and we are working hard to help them make the best use of this window,” it adds.
US-China agreement is a ‘pleasant surprise’ for markets
Stock markets have welcomed news of the agreement between the US and China as investors hope that a global trade war can be averted.
Hong Kong’s benchmark Hang Seng Index was still trading when the announcement was made, and jumped on the news, ending the day up 3%.
European stock markets are also higher and early indications are that the main US stock markets will open up by more than 2%.
Russ Mould, investment director at AJ Bell, says the agreement is “a major breakthrough” as far as investors are concerned and has been welcomed “with open arms”.
“Some people thought the best-case outcome from the weekend’s discussions would be an agreement to simply keep talks going,” he tells me.
“Therefore, to have reached an initial deal so quickly and one that rolls back tariffs by a large amount is a pleasant surprise.”
Oil prices jumped on hopes that global growth will be boosted by the tariff agreement, and the price of benchmark Brent crude rose more than 3% to $64.14 a barrel.
However, the price of gold fell 3% to $3,224.34 an ounce.
The disruption caused by President Trump’s tariffs has helped the gold price to rise in recent weeks as it is seen as a safer asset in times of uncertainty.
Are 90 days enough to address the long-term challenges?
Given the pace at which US President Donald Trump has upended the global economy with his trade war, 90 days might seem like a long time.
It certainly gives US and Chinese negotiators a chance to ease the tensions that have cast a shadow over the global economy since he returned to office in January.
However there were talks between the world’s two biggest economies for most of Trump’s first four-year term that brought limited success.
Eventually a “Phase One Trade Deal” was agreed in January 2020 where China pledged to boost US imports by $200bn above 2017 levels and strengthen intellectual property rules.
In return the US cut some tariffs. But China never manged to hits its purchasing targets – and there are still complaints about intellectual property protections.
On top of which, in the years that followed, both sides added restrictions on trade with each other.
The difficulty in overcoming their differences points to the more fundamental long-term conflict between the world’s two biggest economies.
China’s economy is run with a lot of government direction and that sits uneasily with America’s free market capitalism – and in particular the failings Trump has identified and is trying to address with his trade war.
What we’ve learned so far today about the US-China tariff deal
After months of tit-for-tat tariff measures, the US and China have announced a major reduction in levies against each other, albeit temporarily.
It marks a de-escalation of the ongoing trade war between the two countries. Here’s what we’ve learned so far today:
- Both sides are set to slash tariffs by 115% – with US tariffs on Chinese products falling to 30% and China’s reciprocal tariffs on the US falling to 10%
- The changes will take effect on Wednesday and continue for 90 days – allowing time for both sides to ease tensions through negotiations, our business reporter Jonathan Josephs writes
- Both sides have vowed to continue discussions on trade, with future talks to be held in either China, the US or a third country
- The announcement has given stock markets a boost following major losses after Trump’s initial “Liberation Day” tariff announcement
- The US tariff of 30% is still high, writes our international business correspondent Theo Leggett, but analysts say that the amount will be “manageable”
How tariffs have changed between the US and China
After multiple rounds of tit-for-tat tariffs, the US and China have agreed a deal that will significantly cut import tariffs both sides have imposed on one another for a 90-day period.
A look at the join statement from the US and China on trade
We’ve been looking at the joint statement released by the US and China after their trade meeting in Geneva. Here’s a summary of the deal:
- The 90-day pause will come into effect from Wednesday, with the US reducing tariffs on China to 30%, down from 145%. China will reduce duties on US goods to 10%, down from 125%
- Both countries will establish “a mechanism to continue discussions about economic and trade relations”, spearheaded by US Treasury Secretary Scott Bessent and China’s Vice premier He Lifeng
- Future talks may be held in China or the United States, the statement adds
- Both sides recognise the “importance of their bilateral economic and trade relationship to both countries and the global economy”
- They acknowledge the “importance of their bilateral economic and trade relationship to both countries and the global economy”
- The statement says both the US and China believe that “continued discussions have the potential to address the concerns of each side in their economic and trade relationship”
- It adds that talks will move forward in the “spirit of mutual opening, continued communication, cooperation, and mutual respect”
What are tariffs and how do they work?
As a reminder, tariffs are taxes charged on goods bought from other countries.
Typically, they are a percentage of a product’s value.
A10% tariff means a $10 product would have a $1 tax on top – taking the total cost to $11 (£8.35).
Companies that bring foreign goods into the US have to pay the tax to the government.
They may pass some or all of the extra cost on to customers. Firms may also decide to import fewer goods.
Some of the issues that the US and China might discuss
There is clearly a sense of optimism from both sides after this weekend’s talks in Geneva but there’s a lot of work to be done.
The 90-day tariff suspensions give the US and China more time to make progress, however, the list of US complaints is long.
President Trump has long been unhappy with the fact that the US buys substantially more goods from China than it sells it.
Other concerns include a lack of protection for the intellectual property rights of American companies in China including the forced transfer of technology.
There’s also unhappiness about alleged Chinese government subsidies that give their companies an unfair advantage – something Beijing says Washington also does.
And in some industries, like steel and aluminium production, those subsidies are argued to support excess manufacturing which drives global prices down, Beijing has also dismissed that argument.
Plus there are disagreements over regulations in industries ranging from food to cosmetics.
These differences have been years in the making so it’s difficult to see how all of them can be resolved by August but substantial progress would certainly ease tensions.
US dollar and Yuan up after deal agreed
The value of the US dollar and Chinese Yuan have both risen at the news of the suspension.
The dollar has risen in value against the pound, Euro and Japanese Yen.
The Yuan is also up against those three major currencies, as well as the dollar itself.
China was becoming concerned at the impact of US tariffs
China had maintained a defiant stance as US tariffs spiralled. It retaliated with its own steep levies and pledged that it would not back down.
This country can take the pain of an economic war with America – to an extent. It is the lead trade partner for more than 100 other countries.
But officials in Beijing have become increasingly concerned about the impact the tariffs could have on an economy that is already struggling to deal with a property crisis and high youth unemployment.
Factory output has already slowed and there are reports that some companies were having to lay off workers as production lines of goods bound for the US began to grind to a halt.
The commerce ministry said the agreement reached with the US is an important step to “resolve differences” and “lay the foundation to bridge differences and deepen cooperation”.
Such a positive statement from Beijing would have seemed inconceivable just a month ago.
There is a slight sting in the tail. The ministry ended its statement with a reminder of who it sees as being in the wrong.
“We hope the US. side will continue to work with China to thoroughly correct the practice of unilateral increases.”
A larger cut than expected – but 30% is still a high tariff
The tariff cut was bigger than expected – and that has been welcomed by analysts.
The current US tariff, at 30%, is still high – but has been described by analysts as “manageable”.
Some of the measures have only been paused, not cancelled.
But for the moment, today’s news is being seen as a welcome step forward.
China says tariff cuts in the ‘common interest of the world’
Some more updates from China now – its ministry of commerce says it hopes the US will “keep working with China” on trade.
It adds that tariff cuts are in the “common interest of the world”.
This deal will be welcomed internationally
As US Treasury Secretary Scott Bessent admitted this morning, the tariffs in place amounted to a de facto “trade embargo” between the world’s two biggest economies.
US tariffs on Chinese imports? 145%.
Chinese tariffs on the USA? 125%.
Those tariffs will now be reduced to more workable levels for an initial 90-day period. It’s a boost to the two protagonists involved.
But – in an interconnected world that continues to rely on strong US demand – this rapprochement will be welcomed internationally.
The rest of the world could not afford trade between the US and China to grind to a halt altogether.
Pause to begin on 14 May, with more talks planned
A joint statement on the deal confirms the 90-day pause will begin on 14 May.
It also says both countries will “establish a mechanism to continue discussions about economic and trade relations”.
Scott Bessent will represent the US, while vice premier He Lifeng will represent the Chinese government.
The further talks may be held in the US, China, or an agreed third-party nation.
US tariff on China falls to 30%, with fentanyl element still in place
After several months in which trade tensions between the US and China have escalated rapidly, this was the first sign of a thawing of relations, with the US delegation claiming they had found a constructive path forward.
Ahead of today’s announcement the US tariff on most Chinese imports stood at 145%. That will now be reduced to 30% for the next 90 days.
China has reduced its own duties on US goods from 125% to 10% for the same period.
The US measures still include an extra component aimed at putting pressure on Beijing to do more to curb the illegal trade in fentanyl, a powerful opioid drug.
But US officials said they had been positively surprised by the willingness of China to deal with the problem.
Stocks and oil prices rise at tariff news
In China, Hong Kong’s Hang Seng index has risen sharply at the tariffs announcement.
The index is up by 3.4% as of 08:30 BST (15:30 local time).
The UK’s FTSE 100 index is also up since opening at 08:00 BST, by 0.7%.
Oil prices have also risen, with the value of Brent Crude – a key indicator of oil prices generally – up by 2.8%.
US tariff on China was 145%
We’re waiting for more details on the new tariffs – but, as we’ve reported, Scott Bessent says each side will cut their tariffs by 115%.
The current US tariff on Chinese imports is 145% – while China charges a 125% tariff on some US goods.
So today’s news means the rates should fall to 30% and 10% – but we’re yet to see that confirmed.
China confirms suspension of ‘tariff countermeasures’ – reports
China’s commerce ministry confirms the suspension of “all tariff countermeasures” taken against the US since 2 April, Reuters reports.
Bessent: Tariffs to fall by 115%
Bessent says after “robust” discussions, the US and China have agreed a 90-day pause on “reciprocal” tariffs, meaning both sides will reduce their tariffs by 115%.
BREAKING NEWS: Treasury Secretary Scott Bessent announces China tariff pause
US Treasury Secretary Scott Bessent, speaking in Geneva, has just announced an agreement on tariffs between the US and China. We’ll have more details in our following posts.