US and China reach deal to temporarily slash tariffs, easing slump fears
Emma Farge and Olivia Le Poidevin
4 min read
By Emma Farge and Olivia Le Poidevin
GENEVA (Reuters) - The United States and China reached a better-than-expected deal to temporarily slash tariffs, sending stocks and the U.S. dollar sharply higher, as the world's two biggest economies seek to end a damaging trade war that has stoked fears of recession.
The U.S. will cut extra tariffs it imposed on Chinese imports in April this year to 30% from 145% and Chinese duties on U.S. imports will fall to 10% from 125% for the next 90 days, the two sides said on Monday.
The accord does not include the "de minimis" exemptions for low-value e-commerce shipments from China and Hong Kong, which the Trump administration terminated on May 2, according to a source familiar with the negotiations. The duties are also still higher than before U.S. President Donald Trump announced a raft of tariffs on April 2.
However, the deal went further than many analysts had expected following weeks of confrontational rhetoric on trade.
"This is better than I expected. I thought tariffs would be cut to somewhere around 50%," said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong.
"Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term," Zhang added.
Wall Street stocks jumped and the dollar rose, while gold prices fell on the news, which helped allay concerns about a downturn triggered by Trump's escalation of tariffs aimed at narrowing the U.S. trade deficit.
"Both countries represented their national interest very well," U.S. Treasury Secretary Scott Bessent said after talks with Chinese officials in Geneva. "We both have an interest in balanced trade, the U.S. will continue moving towards that."
Bessent was speaking alongside U.S. Trade Representative Jamieson Greer after the weekend talks in neutral Switzerland in which both sides hailed progress on narrowing differences.
"The consensus from both delegations this weekend is neither side wants a decoupling," Bessent said. "And what had occurred with these very high tariffs ... was the equivalent of an embargo, and neither side wants that. We do want trade."
The tariff dispute had brought nearly $600 billion in two-way trade to a standstill, disrupting supply chains, sparking fears of stagflation and triggering some layoffs.
The Geneva meetings were the first face-to-face interactions between senior U.S. and Chinese economic officials since Trump returned to power and hit China particularly hard with his global tariff blitz.
China's Vice Premier He Lifeng, speaking to reporters at China's mission to World Trade Organization late on Sunday, described the talks as “candid, in-depth and constructive" on issues of concern to both countries.
"The meeting achieved substantial progress, and reached important consensus," He said.
REPRIEVE
Since taking office in January, Trump had hiked the tariffs paid by U.S. importers for goods from China to 145%, in addition to those he imposed on many Chinese goods during his first term and the duties levied by the Biden administration.
China hit back by putting export curbs on some rare earth elements, vital for U.S. manufacturers of weapons and electronic consumer goods, and raising tariffs on U.S. goods to 125%.
Shares in European firms hit by the trade war rallied after the deal. Shipping company Maersk was the biggest gainer in Europe, up more than 12%. It warned last week that container volumes between the U.S. and China had plunged due to the dispute.
"We hope it can lay the foundation for the parties to also reach a permanent deal that can create the long-term predictability our customers need," Maersk said in a statement.
Meanwhile, shares in luxury firms LVMH and Gucci-owner Kering were up 7.4% and 6.7% respectively.
U.S. planemaker Boeing did not respond to requests for comment on how the deal would affect deliveries of aircraft to Chinese customers. In April, it said it was looking to resell potentially dozens of planes locked out of China by tariffs.
Bessent told U.S. media that there was still much work to do, but neither the place nor time for a next meeting had been set.
"We got a lot done over two days. So I would imagine that in the next few weeks we will be meeting again to get rolling on a more fulsome agreement," he told CNBC.
"Over the next 90 days we have a mechanism to meet with the Chinese trade delegation," he told MSNBC in a separate interview. "We will be discussing tariffs, non-tariff trade barriers, currencies and their subsidies of labor and capital, and how we can open up China to American businesses."
He said Chinese officials had understood the importance of addressing the fentanyl crisis and for the first time appeared to be working to halt the flow of pre-cursor drugs into the U.S.
Trump levied the tariffs in part after declaring a national emergency over fentanyl entering the United States.
(Reporting by Emma Farge and Olivia Le Poidevin; Additional reporting by Andrew Silver in Shanghai and Lisa Barrington in Seoul; Writing by Dave Graham and Emelia Sithole-Matarise; Editing by Sharon Singleton)
