Surprise US-China trade deal gives global economy a big reprieve
A few days ago, it would have seemed almost impossible, but on Monday, to the surprise of global investors and everyday businesses fearing a trade war, the U.S. and China agreed to a major de-escalation.
The world’s two biggest economies unwound for now most of the tariffs they had imposed on each other since April in a tit-for-tat battle that had threatened to upend the global economy.
The U.S. agreed to lower to 10% the so-called reciprocal tariffs levied on China, which President Trump had ratcheted up to 125%. China, similarly, agreed to cut its retaliatory tariff on U.S. goods to 10% from 125%.
The two sides agreed to hold those tariffs at that level for 90 days, giving both sides breathing space to find a way to preserve a trading relationship that was threatening to grind to a halt.
Other tariffs on Chinese imports remain in place, however, including a 20% levy linked to China’s alleged role in the fentanyl crisis. That means most Chinese imports into the U.S. will face a 30% tariff overall. There are also separate levies on imports of steel, aluminum and autos, as well as some specific levies on Chinese goods still in place from Trump’s first term and former President Joe Biden’s term in office.
Beijing agreed to suspend or cancel a range of nontariff retaliatory measures it deployed to hit back at Trump’s tariffs, potentially including restrictions on exports of critical minerals used in batteries and other high-tech applications.
Speaking to reporters in Geneva, Treasury Secretary Scott Bessent said the U.S. was seeking “a long-lasting and durable trade deal” with China. He said a clear break between the two economies wasn’t desirable and “neither side wants to decouple.”
U.S. stock futures surged on the news, while the dollar jumped and bond yields rose, as investors cheered a larger-than-expected reduction in tariffs.
Dan Ives, an analyst at Wedbush Securities, said the huge scale of the tariff reduction was “a dream scenario.” Trump had suggested just days ago that an 80% tariff on Chinese goods “seems right.”
The pact marks a significant reprieve for the global economy. Steep tariffs had led trade between the U.S. and China to virtually dry up, heightening inflationary pressure in the U.S. and threatening the export engine powering Chinese growth.
Bessent said the two sides agreed to a framework to keep talks progressing, which he said should help avoid any future tit-for-tat escalation of the kind that followed Trump’s April 2 tariff announcement. At the time, Trump imposed an additional 34% tariff on China as part of his global tariff plan affecting most U.S. trading partners, and the figure kept rising as Beijing and Washington traded rounds of retaliation.
Though the sides didn’t come to agreement over the fentanyl tariffs, the U.S. made clear in private meetings its views on the importance of combating the deadly drug. Trump has accused China of playing a role in the illicit fentanyl trade, something Beijing denies.
In a private meeting on Saturday, Bessent picked up a bit of sugar out of a dish on the table and told Chinese officials that the amount he was holding could kill a person if it were fentanyl, said a person with direct knowledge of the exchange.
Bessent picked up a little more sugar and said that amount could kill people across Geneva. Then he picked up more and said that much could kill people across Switzerland, according to the person.
Write to Brian Schwartz at brian.schwartz@wsj.com and Jason Douglas at jason.douglas@wsj.com