In a dramatic shift, the United States and China have agreed to a 90-day pause in their escalating trade war, rolling back steep tariffs that had threatened global economic stability. Announced on May 12, 2025, after high-stakes talks in Geneva, this agreement marks a significant de-escalation, offering relief to markets and businesses worldwide.
A Costly Escalation
Earlier this year, President Donald Trump imposed tariffs on Chinese goods reaching a combined 145%, a move that effectively halted much of the $660 billion annual trade between the world’s two largest economies. China retaliated with 125% levies on U.S. imports, exacerbating tensions and disrupting supply chains. The U.S. Treasury collected $16 billion in tariff revenue in April alone, a 130% monthly increase, underscoring the scale of the trade barriers. These measures, rooted in Trump’s push to address the $263 billion U.S. trade deficit with China, raised fears of higher prices, shortages, and a potential global recession.
A Breakthrough in Geneva
The breakthrough came unexpectedly after weekend negotiations led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. The joint statement outlined a 115-percentage-point tariff reduction, lowering U.S. duties on Chinese goods to 30% and Chinese tariffs on U.S. imports to 10%, effective May 14. China also agreed to suspend non-tariff measures, such as export restrictions on critical minerals. Trump hailed the deal as a “total reset” in U.S.-China relations, while Bessent emphasized that “neither side wants a decoupling.” The agreement retains Trump’s 20% fentanyl-related tariffs and existing duties from its first term, but the rollback has been celebrated as a step toward cooperation.
Market Optimism and Lingering Uncertainty
Global markets responded with enthusiasm. The Dow surged over 1,000 points, and Hong Kong’s Hang Seng Index rose more than 3%. Retail and tech sectors, heavily reliant on U.S.-China trade, saw significant gains, with companies like Apple benefiting from reduced supply chain pressures. Logistics executives anticipate a surge in freight shipments, although some warn of rising container rates due to pent-up demand.
Yet, analysts urge caution. The 90-day pause is temporary, and deep-rooted issues—such as China’s subsidies and the U.S. trade deficit—remain unresolved. Bessent hinted at further talks in the coming weeks, potentially building on the “Phase 1” deal from 2020, which Beijing failed to fully honor. While Chinese officials view the agreement as a victory, highlighting “equality and mutual respect,” U.S. negotiators face pressure to secure long-term commitments.
A Path Forward
This truce offers a critical window for both nations to negotiate a more comprehensive deal. For businesses, it provides short-term relief ahead of the holiday season, as noted by the National Retail Federation. For the global economy, it signals a reprieve from the trade war’s aftershocks. However, with Trump’s unpredictable trade policies and China’s firm stance on its economic priorities, the path to lasting stability remains uncertain. As Trump prepares to speak with President Xi Jinping, the world watches closely, hopeful for sustained de-escalation.
This development underscores the delicate balance between economic interdependence and geopolitical rivalry, offering a cautious glimpse of cooperation amid broader systemic competition.
