The US and China will temporarily lower tariffs on each other’s products in a dramatic ratcheting down of trade tensions that buys the world’s two largest economies three months to work toward a broader agreement.
The combined 145% US levies on most Chinese imports will be reduced to 30% including the rate tied to fentanyl by May 14, while the 125% Chinese duties on US goods will drop to 10%, according to a joint statement and from officials in a briefing Monday in Geneva.
“Both sides agree we do not want a generalized decoupling,” Treasury Secretary Scott Bessent said in a Bloomberg Television interview Monday. “The US is going to do a strategic decoupling in terms of the items that we discovered during Covid were of national security interests — whether it’s semiconductors, medicine, steel,” he said.
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Bessent’s overtures to ease trade tensions with China come less than six weeks after President Donald Trump’s “Liberation Day” announcement April 2 of so-called reciprocal tariffs on dozens of countries. The retaliation that followed took duties to levels that for many companies effectively blocked trade and caused widespread uncertainty that could be sustained if talks don’t keep progressing.
Bessent said it’s “implausible” that reciprocal tariffs on China go below 10%, but the April 2 level — set by President at 34% — “would be a ceiling.” He also said that “we could see some amount of the fentanyl tariffs perhaps come off,” if there were “excellent engagement” from Beijing on solutions toward solving that crisis. Trump put a 20% surtax on China earlier this year over fentanyl concerns.
Speaking to reporters earlier in Geneva, the Treasury chief said, “We expect that as the negotiations proceed, that there will also be the possibility of purchase agreements to pull what is our largest bilateral trade deficit into balance.”
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Bessent added that the tariff reductions don’t apply to sectoral duties imposed on all US trading partners, and the tariffs applied on China during the first Trump administration remain in place. Asked what would happen at the end of 90 days to avoid tariffs ratcheting back up, Bessent indicated there’s a chance to extend the truce further.
“Just like with all our other trading partners, as long as there is good faith effort, engagement and constructive dialog, then we will keep moving forward,” he said.
Stocks and the dollar soared on the news, with S&P 500 futures up 3.1% as of 8:19 a.m. in New York. Oil prices advanced, Treasury yields rose. The offshore yuan climbed about 0.5%. China’s bonds fell, with the 30-year yield climbing by six basis points, the most since March, to 1.95%.
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In a statement, the US side said “the parties will establish a mechanism to continue discussions about economic and trade relations.”
In a research note, Maeva Cousin of Bloomberg Economics said today’s move “substantially lowers the US average tariff shock on China,” though the remaining import taxes remain high and could still cut US imports from China by about 70% in the medium term.
Beijing’s Response
China also said it would suspend or cancel its non-tariff countermeasures imposed on the US since April 2. That’s an apparent reference to China’s addition on April 4 of seven rare earths to its export control list. Securing the removal of those restrictions was a priority for Washington as a range of industries faced disruption.
China has always handled relations with the US based on the principles of mutual respect, the official Xinhua News Agency reported, citing a white paper on national security. China is committed to the stable development of relations with the US, it said, and imposing pressure and threats are not the right way to deal with China.
“The agreement, which significantly lowers tariffs without any concessions, is likely to be viewed as a particular victory for China,” Lynn Song, ING’s chief economist for greater China, wrote in a research note.
Around the same time the tariff reductions were unveiled, China released a white paper on national security that vowed to add more tools to Beijing’s retaliation toolkit and improve mechanisms for countering sanctions and so-called long-arm jurisdiction.
Trade Slump
The de-escalation comes after recent data showed a slump in trade across the Pacific Ocean. The two countries had earlier reported “substantial progress” in talks, which buoyed markets and helped Chinese stocks recoup their losses since Trump’s “Liberation Day” announcement of tariffs on April 2.
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Ryan Petersen, the founder and CEO of digital logistics platform Flexport Inc., posted a note on X indicating he expects a race to transport goods across the Pacific given the tariff reprieve. “Get ready for a shipping boom,” he wrote without elaborating.
Trade Representative Jamieson Greer said the US wants to have more balanced trade with China and “our Chinese counterparts clearly came to deal this week.”
Before the talks began in Switzerland, Trump has posted on Truth Social that an 80% tariff on China “seems right,” but left it up to his Treasury chief to decide. Bessent said Monday that the president had viewed that level as “a number that did not cause an embargo.”
‘Very Good’
Asked on Monday how the US team ultimately landed on a much lower number in the talks, Greer said: “Everything is a negotiation.”
The US president offers “direction and advice on how to proceed, and we ended up at a result that is very good for the United States — very good for China as well,” Greer told reporters.
He listed measures that were left in place as part of the truce, including the 10% global baseline tariff that was applied to all US trading partners, as well as China-specific tariffs Trump imposed during his first term that “have been effective in reducing the US bilateral trade deficit with China.”
“That leaves us in a very good position, all in, with respect to measures on Chinese imports,” Greer said. “But more importantly, leaves us on a constructive path forward to have a positive conversation with the Chinese on how to rebalance.”
Phase One
While markets have cheered recent reports of progress, history suggests that it could take a long time to reach a detailed agreement, if one is possible at all. In 2018, the two sides also agreed to put their dispute “on hold” after a round of negotiations, but the US soon backed away from that deal, leading to more than 18 months of further tariffs and talks before the signing of the “Phase One” trade deal in January 2020.
In the end, China failed to live up to the purchase agreement in that deal and the US trade deficit with China jumped during the pandemic, setting up the current trade war.
Greer made clear that discussions about the phase one deal did not factor into this weekend and it remains unclear if the Trump team will revisit that agreement or enforce it. Bessent said Monday that that deal had offered a template, and it was only under the Biden administration when Beijing “neglected” its obligations. But since the deal was done, “the world has changed, products have changed, product mix has changed — so I think everything is on the table.”
Greer said earlier that “The talks were very much focused on how do we get the tariff levels to something that is not an embargo, but still allows the United States to pursue its goal of trade deficit reduction,” he said.
At one point in the weekend talks, Bessent made his point by reaching into the small bowl of sugar in front of him, putting a small amount in the palm of his hand and telling his Chinese counterparts, “This would kill everyone in this room,” according to a person familiar with the episode.
He then proceeded to take out a bit more sugar and said: “This would kill everyone in Geneva,” and more to signal an amount that would kill everyone in Switzerland — shocking Chinese negotiators with his frankness, the person added.
Xu Datong, China’s vice minister of public security, was among those in the room, the person said.
