Fast reading
- The US is to reduce China import duties to 30% from 145% and China is to reduce US import duties to 10% from 125%.
- US stocks have been further bolstered by lower-than-expected US inflation data which saw CPI fall to 2.3% in April.
Global stocks have rallied this week after the US and China agreed to dramatically reduce trade tariffs for at least 90 days following talks in Geneva between the world’s two largest economies.
Despite only agreeing a temporary truce, the news buoyed investor sentiment with the US blue-chip S&P Index rising 4% and the China-focused Hang Seng Index increasing 3.5% since the announcement1, led by the rebound in export-sensitive stocks in both regions.
The rallies mean many indices have now wiped out losses sustained this year in the aftermath of the 2 April tariffs announcement – dubbed ‘Liberation Day’ – by US President Donald Trump, which fuelled trade tensions and sparked fears of a global recession.
US stocks have been further bolstered by lower-than-expected US inflation data released on Tuesday which saw CPI fall to 2.3% in April.
Figure 1: Markets recover all ‘Liberation Day’ losses
At the end of the US-China talks in Switzerland, officials from both sides put out a statement recognising “the importance of a sustainable, long-term, and mutually beneficial economic and trade relationship”2.
At part of the negotiations, the US is to reduce China import duties to 30% from 145% (however, 20% tariffs relating to fentanyl remain in place); China is to reduce US import duties to 10% from 125% and Beijing has also agreed to suspend and cancel certain non-tariff measures, such as restrictions on rare earth exports.
In a post-Geneva press conference, US Treasury Secretary Scott Bessant, said both parties were working towards a more balanced working relationship, that neither side wanted a ‘decoupling’. A ‘mechanism’ has been agreed to continue a constructive dialogue, he added.
A win for China?
“We anticipated a de-escalation, but the dramatic removal of all reciprocal tariffs exceeded expectations,” says James Cook, Head of Investment Directors at Federated Hermes Limited.
“This is a significant win for China as it ended up meeting nearly all of its core demands. The ‘reciprocal’ tariff for China, which President Trump set at 34%, has been suspended leaving China with the same 10% rate that applies to US allies like the UK,” Cook adds.
“While tensions may have peaked, uncertainties remain with the 90-day suspension. For now, the rhetoric from both sides is notably positive and constructive. Near term, the positive outcome of trade negotiations could spell bad news for stimulus [in China], as policymakers might now adopt a ‘wait-and-see’ approach. Consequently, the likelihood of an upward fiscal budget revision this year has significantly diminished.”
We anticipated a de-escalation, but the dramatic removal of all reciprocal tariffs exceeded expectations
The ‘tariff wars’ launched by the White House were intended to be a shock-and-awe negotiating tool, says Phil Orlando, Chief Equity Market Strategist at Federated Hermes Inc. “The move was always intended to draw the US’s major trading partners to the table to lower their tariff levels and help mitigate the US$1.2tn balance of trade goods deficit last year,” he says.
“With the UK and China tariff progress in recent days, we expect other trade deals to fall into place including Japan, India, South Korea, Vietnam, and Australia, among other countries,” Orlando adds.
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1 Bloomberg as at 15:40 GMT on 14 May 2025
2 Joint Statement on U.S.-China Economic and Trade Meeting in Geneva – The White House
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