In a significant diplomatic and economic development, the United States and China have agreed to a major reduction in tariffs, providing a much-needed breather to global markets, manufacturers, and political leaders on both sides. After two intense days of negotiations in Geneva, Switzerland, top trade officials announced a temporary 90-day rollback on tariffs imposed during a years-long trade standoff.

Key Tariff Changes and Immediate Impact

Under the new terms:

• The US reduced its tariffs on Chinese goods from a peak of 145% to 30%, dramatically easing the pressure on Chinese exporters.

• China lowered its retaliatory tariffs to 10%, aligning with its rate on other trade partners like the UK.

• The agreement suspends the “reciprocal” 34% tariff that was imposed by the US in early April, effectively normalizing trade terms.

This sudden de-escalation sent stock markets and the US dollar soaring, providing a much-needed boost for President Donald Trump, who is under scrutiny over inflation and looming midterm elections. Chinese equities also surged, reflecting investor optimism and economic relief.

China's Strategic Victory and Domestic Support

Analysts agree that Beijing achieved almost all its core demands in the deal. Notably, President Xi Jinping refused to engage directly with Trump during the negotiation phase, instead focusing on fortifying China's economy through domestic stimulus, interest rate cuts, and aggressive global diplomacy.

Xi’s steadfastness helped him:

• Avoid conceding to Trump’s demands prematurely

• Rally nationalistic support at home, reinforcing his administration's legitimacy

• Show that China has economic and diplomatic leverage even in the face of aggressive US policies

According to Trey McArver of Trivium China, “This is arguably the best outcome that China could have hoped for — the US backed down.”

Trade Framework and Strategic Points of Agreement

Beyond tariffs, the two countries agreed on several structural points:

• Appointment of Treasury Secretary Scott Bessent as the lead negotiator for US-China talks

• Mutual pledge to take “aggressive actions” against fentanyl trafficking

• Plans to review non-tariff barriers, particularly export controls and rare earth mineral trade

• Discussion of future purchase agreements, though no immediate investment increases from China were committed

Trump emphasized that the “total reset” in relations doesn’t include exemptions on certain strategic sectors, such as:

• Automobiles

• Steel and aluminum

• Pharmaceuticals

This cautious protection reflects US intent to secure strategic industries while moving away from generalized decoupling.

Economic and Market Reactions

The agreement has already energized financial markets. Economists from Bloomberg, ING Bank, and Morgan Stanley highlight the following:

• Bloomberg Economics: Average US tariff on Chinese goods falls from over 100ppt to around 28ppt

• ING Bank: Upgraded China’s GDP forecast from 4.4% to 4.7% for 2025

• Morgan Stanley: Anticipates a spike in US-bound exports from China in May and June, driven by frontloading of goods during the suspension window

This short-term truce is expected to boost China’s manufacturing output, aid in achieving the 5% annual growth target, and recalibrate global supply chains that have been disrupted since the onset of the US-China trade war.

Beijing's Long-Term Trade Strategy

Despite the breakthrough, Chinese officials remain cautious. According to Dong Yan of the Chinese Academy of Social Sciences, China has learned not to trust short-lived tariff agreements and is preparing for volatility.

In parallel, Beijing has shifted its strategy over the years:

• Reducing dependency on US imports, particularly for agriculture and tech

• Diversifying trading partners, strengthening ties with Brazil and ASEAN

• Investing in self-reliance, particularly in semiconductors and high-end manufacturing

Xi's policy of "dual circulation" — focusing on both domestic and international economic loops — appears vindicated by the recent developments.

US Political Calculations and Midterm Pressure

For President Trump, the tariff retreat is seen as a strategic move to appease domestic pressure. With inflation rising and businesses fearing further disruption, the White House needed a cool-down in trade rhetoric to restore market confidence.

Furthermore, Republican lawmakers and business lobbies had begun voicing concerns over the economic and political fallout of prolonged tariff escalations. Trump’s approach in Geneva — uncharacteristically low-key and respectful — signals a shift to a more traditional diplomatic tone, possibly influenced by campaign considerations ahead of 2026 midterms.

Future Negotiations and Remaining Challenges

The 90-day suspension is not a resolution but rather a temporary truce. In the coming months, negotiators will focus on:

• Long-term trade rebalancing

• Revisions to intellectual property rules

• Potential agreements on state-owned enterprise reforms

• Stabilizing export controls and supply chain coordination

Notably, China remains firm on maintaining its core economic model, including the operation of state-owned enterprises, which Song Hong of the Chinese Academy of Social Sciences identified as a non-negotiable red line.

Rare Earths and Non-Tariff Levers

A major US priority is the removal of Chinese export controls on rare earth elements, which are essential in tech and defense applications. While the talks made progress, China has not committed publicly to lifting these restrictions.

Vice Premier He Lifeng’s team agreed to roll back some non-tariff measures, though specifics remain undisclosed. This lack of clarity could become a sticking point in follow-up rounds.

Conclusion: A Strategic Win for China, Tactical Relief for US

The recent Geneva deal is widely seen as a strategic win for China, both economically and politically. Xi Jinping’s resolve and methodical diplomacy forced the US to back down from an extreme tariff position. Meanwhile, Trump secured a temporary economic relief, which could help stabilize markets and his political standing.

Yet, both sides know the conflict is far from over. The underlying issues of technology, political influence, and global economic leadership remain unresolved. This truce is a reset, not a resolution — but one that redefines the tone and opens the door for more sustainable economic cooperation.

For now, the world breathes easier as two superpowers hit the pause button on their economic war, offering hope that dialogue and diplomacy might prevail in an increasingly complex geopolitical era.

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