China, US agree to 90-day tariff cuts ahead of more talks to defuse trade war

(Photo credit: BLOOMBERG)

Source: The Straits Times

China and the United States have both agreed to slash reciprocal tariffs on each other and to commit to trade talks, in a new development that has perked up markets and assuaged fears of a global economic slowdown.

For 90 days from May 14, the US will effectively cut tariffs on imports from China to 30 per cent from 145 per cent, while China will reduce tariffs on US goods to 10 per cent from 125 per cent.

Following the agreement, US President Donald Trump said he would likely speak to Chinese leader Xi Jinping later this week.

“We achieved a total reset with China after productive talks in Geneva,” Mr Trump said during a news conference at the White House on May 12. “I’ll speak to President Xi, maybe at the end of the week.

“They were very happy to be able to do something with us and the relationship is very, very good,” he added.

The world’s two largest economies said in a joint statement on May 12 after two days of talks in Geneva that they recognised “the importance of their bilateral economic and trade relationship to both countries and the global economy”.

China will also hold off or remove all non-tariff countermeasures it has taken against the US since April 2, the statement said.

“The surprise breakthrough signals that both Washington and Beijing are under mounting pressure to stabilise markets without conceding core positions,” Dr Dan Wang, China director at political risk consultancy Eurasia Group, told The Straits Times.

She said that the sharp tariff cuts “suggest that Mr Trump wants a headline win” ahead of the next election cycle, even if the deal for now “lacks substance beneath the surface”.

“Beijing, in turn, is buying time by using the 90-day window to reduce economic uncertainty without making structural commitments,” she added. 

China and the US have pledged to “continue discussions about economic and trade relations” during the 90-day pause, the statement said.

These negotiations will be fronted by China’s Vice-Premier He Lifeng, the country’s economic czar, and US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer.

Mr He, Mr Bessent and Mr Greer had met in Geneva in Switzerland in the first publicly known trade talks between both sides since the US ratcheted up tariffs on Chinese goods in April.

Both Mr He and Mr Bessent separately told the press on May 12 that the meetings had achieved “substantial progress”, with Mr He describing the atmosphere during talks as “candid, in-depth and constructive”.

“The consensus from both delegations is that neither side wanted a decoupling,” Mr Bessent added.

The latest agreement between China and the US marks a significant de-escalation from a trade war that has put the global economy on edge.

Global trade tensions have been high since Mr Trump took office in January, when he promised to “tariff and tax foreign countries to enrich (US) citizens” in his inaugural address.

The latest trade war between the US and China started in February, when Mr Trump slapped new tariffs on Chinese imports.

China then retaliated with a raft of countermeasures, including new tariffs on American goods and an anti-monopoly investigation into US tech giant Google.

Eventually, the US hiked tariffs on goods from China to 145 per cent, and China responded by slapping tariffs of 125 per cent on US imports. 

Throughout the latest trade war, China had promised to “fight to the end” and pledged to double down on its own economic development.

Mr Trump, who has long deemed the US to be short-changed in its trade dealings with the world, had also imposed a baseline tariff rate of 10 per cent on all countries that took effect on April 5.

Countries with the largest trade deficits with the US faced even higher tariffs.

Risks from the US trade tariffs led the International Monetary Fund (IMF) to warn in April of a worsening global outlook, as the financial agency sharply lowered its economic forecast for 2025 and 2026.

For 2025, the IMF expects global growth to come in at 2.8 per cent, lower than its January forecast of 3.3 per cent and the slowest rate of expansion since the Covid-19 pandemic.

It also lowered its forecast for 2026 to 3 per cent, trimming 0.3 percentage points from its earlier estimate.

Mr Trump’s escalating trade war had knocked trillions of dollars off the value of some of the world’s largest companies, including American companies, with the US stock indices recording some of their worst trading days since the Covid-19 pandemic. 

“The US likely blinked first, given concerns about its capital markets and empty shelves,” Ms Shan Guo, a partner at business consultancy Hutong Research, told ST.

Following news of the tariff cuts, global markets surged, led by the US dollar. The benchmark Hang Seng Index in Hong Kong and S&P 500 stock futures both jumped about 3 per cent.

Analysts and industry players told ST that the Geneva meetings were a good breakthrough, but warned against unbridled optimism. 

“Markets are reacting to optics, not fundamentals,” Eurasia Group’s Dr Wang said. “Unless deeper issues like tech restrictions and capital flows are addressed, this truce risks becoming just another tactical pause in a longer-term decoupling.”

She added: “The underlying mistrust and strategic divergence between the two powers remain unresolved.”

Mr Jens Eskelund, president of the European Union Chamber of Commerce in China, also said “uncertainty remains” despite the breakthrough in talks.

“This is partly because certain tariffs have been suspended for only 90 days, and partly because of the erratic nature in which these tariffs were implemented in the first place,” he added, pointing out that companies “need predictability to maintain normal operations and make investment decisions”.

Still, the outcome of the Geneva talks has given hope to other countries hoping to broker a deal with the US, said Ms Erica Tay, Maybank’s director of macro research.

“It sends the signal that Washington is responsive to feedback from American business leaders and financial markets,” she added. 

“The US would probably be keen to wrap up deals with other trading partners which are its top export markets and biggest import sources, to bring down inflation and curb the risks of a recession,” Ms Tay said.