U.S. and China Seal Historic Tariff Reduction in Surprise Trade Truce
The United States and China have agreed to a mutual tariff reduction for 90 days, surprising markets with a gesture of de-escalation. Washington will lower tariffs on Chinese imports from 145% to 30%, including levies related to fentanyl. In return, Beijing will cut its tariffs on American goods from 125% to 10%, according to a joint statement from Geneva.
Strategic Decoupling and Key Sectors
Treasury Secretary Scott Bessent clarified that the goal is not total decoupling, but strategic separation in essential sectors: semiconductors, pharmaceuticals, and steel. The move comes weeks after the “Liberation Day” declared by Trump, which raised global tariffs and froze trade with numerous countries.
Tariffs and Anti-Drug Cooperation
Bessent said the 34% set in April marks a ceiling, but that 10% is a “plausible” level. He also suggested that part of the fentanyl-related surcharge could be lifted if China actively cooperates in addressing the crisis. President Trump had imposed an additional 20% on Chinese products this year because of this issue.
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Market Reaction and Economic Outlook
Markets responded with optimism: the S&P 500 rose 3.1%, the dollar strengthened, and Treasury bonds rallied. The offshore yuan gained 0.5%, while Chinese bonds declined. According to Bloomberg Economics, the move reduces the average impact of tariffs, though the remaining rates could affect medium-term imports.
Beijing Cancels Retaliation and Issues White Paper
China announced the suspension of non-tariff measures imposed since April, including export controls on rare earths. In a new white paper, it reaffirmed its commitment to mutual respect and rejected unilateral pressure as a negotiating tactic. Beijing also warned it would strengthen tools against foreign sanctions.
Direct Negotiation and Diplomatic Symbolism
During talks, Bessent illustrated the dangers of fentanyl by using a pinch of sugar to represent lethal doses, leaving a strong impression on Chinese delegates. Representative Jamieson Greer confirmed that the 10% baseline and tariffs imposed since 2018 will remain, reinforcing the U.S. negotiating stance.
Precedents, Limits, and Next Steps
While the agreement has been well received, skepticism remains. Past experiences, such as the collapse of the 2018 truce and the failure of the “Phase One” deal, weigh on expectations. “The world has changed, and everything is on the table,” Bessent said, hinting at a possible extension if constructive talks continue.
