Global market worries have eased after news that the US and China have made progress regarding the trade war during talks that took place in Geneva, Switzerland, the past weekend.
Stocks rose across Asia-Pacific markets, while safe-haven asset gold weakened, amid expectations that trade war tensions between the US and China have eased.
Any news on ‘trade deals’ has helped undo the damage from Donald Trump’s ‘Liberation Day’. This was noted by Dario Perkins, an analyst at TS Lombard.
Equities have risen despite tariffs being higher than at the start of the year. There is still continued uncertainty about what will actually happen in the next six months.
US and China Agree on 90-Day Pause to Cut Tariffs by 115% in Markets
The US and China have agreed to lower tariffs on each other’s goods for 90 days. This decision follows their negotiations last weekend. Treasury Secretary Scott Bessent explained that ‘both sides will move their tariffs down by 115%. This agreement comes after they settled on a 90-day pause.
Last month, concerns were high, and trade tensions escalated, but after the negotiations, the progress is unexpected and welcomed by both markets and analysts. Before the latest updates, the US had pushed its tariff on China to 145%. This included a 20% tariff added to tackle fentanyl imports into the US. Beijing responded with 125% retaliatory tariffs on US imports.
Treasury Secretary Scott Bessent spoke to reporters and revealed that both sides were respectful during their talks. He added that they shared a common interest in achieving balanced trade.
The White House released a joint statement with details of the agreement. It confirmed that both sides will cut reciprocal tariffs on each other’s goods by 115%. They agreed to move forward in the spirit of mutual opening, continued communication, cooperation, and mutual respect.
Treasury secretary Bessent added:
I’m happy to report that we made substantial progress between the United States and China. These advancements came during the very important trade talks. First, I want to thank our Swiss host.
The Swiss government has been very kind in providing us this wonderful venue. I think that contributed to the great deal of productivity we’ve seen. We will be giving details tomorrow, but I can tell you that the talks were productive.”
US Trade Representative Ambassador Jamieson Greer stated that talks on both days were very constructive. He added that the differences may not have been as big as expected.
For Beijing, Vice Premier He Lifeng described the meeting as ‘in-depth, candid and constructive. He noted that both sides agreed to a new ‘trade consultation mechanism..
US and China Make Progress with New Trade Mechanism
This mechanism indicates an improvement in the two countries relations. The joint mechanism focuses on “regular and irregular communications related to trade and commercial issues,” China’s international trade representative Li Chenggang explained.
A spokesperson for China’s ministry of commerce celebrated the move on Monday, May 12, and said that the agreement “meets the expectations of producers and consumers in both countries, as well as the interests of both nations and the common interest of the world. We hope that the US side will, based on this meeting, continue to move forward in the same direction with China, completely correct the erroneous practice of unilateral tariff hikes, and continually strengthen mutually beneficial cooperation.”
Talking to CNN, US commerce secretary Howard Lutnick clarified that the US will continue to keep “a 10% baseline tariff to be in place for the foreseeable future” on imports from nations with which the US agrees new trade deals.
On Sunday, Kevin Hassett, the director of the National Economic Council, said: “What’s going to happen in all likelihood is that relationships are going to be rebooted. It looks like the Chinese are very eager to play ball and renormalise things … they really want to rebuild a relationship that’s great for both of us.”
Market reaction
Financial markets have been on edge expecting trade tensions to ease as the ongoing trade war has already started to disrupt supply chains, increase wholesale prices and generate layoffs.
Markets welcomed the news with China’s CSI300 share index rising 0.8%, while Hong Kong’s Hang Seng index was up 1.2%. Japan’s Nikkei only rose 0.3%.
U.S. stocks rose after the announcement. Futures contracts for the U.S. benchmark S&P 500 index were up by 2.5 %.
European stock markets also rose. The Euro Stoxx 600 index, which tracks the largest publicly traded companies in Europe, was up by 0.9%.
The price of gold, which is a traditional safe haven attracting investors in times of economic instability, dropped by 3.4%.
Analysis
Some analysts noted that that there was more style than substance in the agreement reached, with only a pledge to lower tariffs and celebrating talks as productive. So far, tariffs have had a negative impact on economic growth, but the labour market has stayed strong and prices have been stable.
The agreement to cut tariffs is better than expected other analysts have noted. With the US cutting tariffs on Chinese goods to 30% from 145% for 90 days, and China lowering its tariffs on US goods to 10% from 125% for 90 days, the news has taken markets by surprise. This will allow the two sides the necessary time to strike a more comprehensive deal.
While this is a considerable de-escalation, the US still has much higher tariffs on China than on other countries. Additionally, the US seems to be trying to push other countries to increase their tariffs and restrictions on their trade with China. So, for many, the 90-day truce may not be such positive news yet as it may not lead to a final ceasefire.
The agreement has set a new tone and opened the way for more talks between Trump and Xi. An end to the tariff war may be possible, but nothing seems certain for analysts.
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