The United States and China said on May 12 they have agreed to a deal to slash reciprocal tariffs for 90 days.
Speaking after talks with officials from the Chinese communist regime in Geneva, U.S. Treasury Secretary Scott Bessent told reporters that the two sides had agreed on a 90 day pause on measures and that they will move their tariffs down.
Both economies have sought to end a trade war in which last month the United States slapped Beijing with a 145 percent tariff on Chinese goods, while the Chinese Communist Party hiked 125 percent levies on U.S. imports in retaliation.
“Both countries represented their national interest very well,” Bessent said.
“We both have an interest in balanced trade, the U.S. will continue moving towards that.”
Trade Representative Jamieson Greer said that the U.S.’s reciprocal tariff rate will go down to 30 percent, “so it goes down 115 percent.”
“And the Chinese on their side also go down 115 percent to 10 percent, and they remove the countermeasures that they have in place,” he added.
One reason President Donald Trump imposed tariffs on China (as well as Mexico and Canada) was that he said the Chinese regime has failed to take the necessary steps to curb the flow of the deadly drug fentanyl.
Trump also said the levies are a response to China’s “intellectual property theft, forced technology transfer, and other unreasonable behavior.”
Other measures the United States has put in place previously, whether that is tariff measures from 2018 or tariffs under other statutory authorities, those remain unchanged for now, Greer said.
“The Chinese and the United States agreed to work constructively together on fentanyl,” he added.
In a statement China’s Ministry of Commerce said the high tariffs have “severely damaged normal bilateral trade and disrupted the international economic and trade order.”
“We have a process now. We have a meeting mechanism. We loosely christened it the ‘Geneva Mechanism,’” Bessent said in a follow up interview with CNBC’s Squawkbox.
In the next few weeks Bessent said he expects they would be meeting further to work on a more fulsome agreement.
“What we do want is a decoupling for strategic necessities, which we were unable to obtain during COVID,” Bessent said.
The United States will create and protect its steel industry, he said, adding that it will work on critical medicines and semiconductors.
Markets reacted positively to the deal.
Futures on the S&P 500 and Nasdaq jumped to 2.8 percent and 3.5 percent, while in Europe, the STOXX 600 rose 0.7 percent.
The U.S. dollar strengthened by 1.6 percent following news that tariffs had been suspended, pushing its value higher against the pound, euro, and yen.
The yield on 10-year Treasuries rose to around 4.44 percent.
Meanwhile, oil prices surged, with both WTI and Brent crude seeing increases in reaction to the news of easing trade tensions.
Gold prices, previously helped by previous safe-haven demand, dropped by 3 percent.
“The de-escalation of tensions between China and the U.S., with tariffs being reduced for 90 days, is reducing the demand for safe haven assets like gold,” said UBS analyst Giovanni Staunovo.
“Near-term prices are likely to stay volatile. But higher tariffs are still weighing on economic growth and likely force central banks to cut further interest rates later this year. Also central banks might use this price setback to add exposure,” he added.
When Trump first imposed his tariffs, European and Asian markets were rocked. For example, at the time, Hong Kong stocks fell dramatically, experiencing their biggest drop since 1997.
Speaking to reporters aboard Air Force One on April 6, in response to a question about the effect on the markets, Trump said, “I don’t want anything to go down. But sometimes you have to take medicine to fix something.”
Reuters contributed to this report.
