U.S. and China Announce Major Tariff Reductions with 90-Day Pause to Foster Trade Talks

In a dramatic turn in the escalating trade war between the United States and China, both nations announced significant tariff reductions on May 12, 2025, following high-level talks in Geneva. The agreement, described as a “substantial de-escalation,” includes a 90-day pause to allow further negotiations, aiming to stabilise global markets and prevent economic decoupling. The move comes after months of tit-for-tat tariff hikes that have disrupted trade, spiked consumer prices, and heightened recession risks worldwide.

Breakthrough in Geneva: Tariff Reductions and Pause

The United States, led by Treasury Secretary Scott Bessent, and China, represented by Vice Premier He Lifeng, reached a consensus to slash reciprocal tariffs for 90 days, effective immediately. The U.S. will reduce its tariffs on Chinese imports from 145% to 30%, while China will lower its duties on U.S. goods from 125% to 10%. However, the U.S. will maintain a 20% tariff on Chinese imports related to the fentanyl trade, and China has agreed to suspend or cancel certain non-tariff measures, such as export controls on rare earth elements, according to the Financial Times.

 

Chinese Vice Premier He Lifeng called the agreement “an important first step,” emphasising a “candid, in-depth, and constructive” dialogue. A joint statement released by both delegations underscored a shared desire to avoid decoupling, with Bessent noting, “Neither side wants an embargo-like situation.” President Donald Trump, posting on Truth Social, hailed the progress, stating, “GREAT PROGRESS MADE! A total reset negotiated in a friendly, but constructive, manner.”

 

The 90-day pause builds on an earlier April 9 pause on country-specific tariffs for most nations (except China), which reduced tariffs to a universal 10% to encourage trade negotiations. This latest agreement specifically targets the U.S.-China trade dispute, aiming to create breathing room for broader trade discussions.

Why the 90-Day Pause?

The decision to implement a 90-day pause stems from several critical factors:

 

1. Market Volatility and Economic Pressure: The tariff war has triggered significant market turmoil, with the S&P 500 dropping below 5,000 in April and global markets experiencing volatility reminiscent of the early COVID-19 pandemic. The April 9 pause on tariffs for most countries sparked a historic 12% Nasdaq rally, signalling investor sensitivity to trade policy shifts. The U.S. economy contracted by 0.3% in Q1 2025, and economists warned that sustained high tariffs could tip the U.S. into a recession. The pause aims to stabilise markets and restore investor confidence.
2. Preventing Economic Decoupling: Both nations recognise that tariffs exceeding 125% were effectively an embargo, risking a permanent split in global trade networks. Bessent emphasised that “neither side wants a decoupling,” as it would disrupt supply chains and harm both economies. China’s export-driven economy faces potential job losses of up to 16 million, while U.S. consumers are grappling with rising costs for goods like smartphones and groceries.
3. Facilitating Negotiations: The pause provides a window for “bespoke” trade negotiations, as described by Bessent, to address issues like trade imbalances, market access, and non-tariff barriers. The U.S. seeks greater access for American businesses, particularly in agriculture, while China aims to protect its export markets. The success of a recent U.S.-UK trade deal, announced May 8, which lowered tariffs on British steel and autos, has fuelled optimism for similar agreements.
4. Response to China’s Retaliation: Unlike other trading partners who refrained from retaliating during the April pause, China escalated tariffs to 125% on U.S. goods, prompting Trump to raise U.S. tariffs to 145%. The Geneva talks reflect a mutual recognition that further escalation is unsustainable, with both sides agreeing to de-escalate to encourage dialogue.

The Tariff War: A Costly Escalation

The trade conflict began intensifying in February 2025, when Trump imposed a 20% tariff on Chinese imports, followed by a 34% “reciprocal tariff” on April 2 via Executive Order 14257, citing a $1.2 trillion U.S. trade deficit. China matched with 34% tariffs, escalating to 84% and then 125% as the U.S. raised duties to 104% and eventually 145%. China also imposed non-tariff measures, including export controls on rare earths critical for high-tech industries, and reduced U.S. oil imports by 90%.

 

The economic toll has been significant. U.S. consumers face higher prices, with estimates suggesting Trump’s tariffs could cost households $1,300 annually. Retailers like Amazon and Walmart have raised prices or withdrawn earnings guidance due to tariff uncertainty. In China, export declines threaten economic stability, while global trade could shrink by 3% if the conflict persists, according to the World Trade Organization.

What’s Next?

The 90-day pause, set to expire on August 10, 2025, is a critical juncture. Both sides have established a “trade consultation mechanism” to guide future talks, with a joint statement expected to detail commitments. Potential areas of focus include:

 

• U.S. Priorities: Increased Chinese purchases of U.S. agricultural goods, addressing fentanyl precursor exports, and opening China’s service sector to American firms.
• China’s Goals: Reducing U.S. tariffs further, easing restrictions on Chinese companies like Shein and Temu, and resolving disputes over TikTok’s sale.
• Global Implications: A successful U.S.-China deal could pave the way for agreements with other partners, such as the EU, which paused its retaliatory tariffs for 90 days in April.

However, risks remain. The pause introduces uncertainty for businesses, as noted by French President Emmanuel Macron, who called it “fragile.” If negotiations falter, tariffs could snap back, reigniting the trade war. Posts on X reflect mixed sentiment, with some viewing the reductions as a U.S. concession, while others see it as a pragmatic ceasefire to avoid economic fallout.

A Pivotal Moment

The tariff reductions and 90-day pause mark a rare moment of détente in U.S.-China relations, driven by economic necessity and a shared interest in avoiding a global downturn. As negotiations unfold, the world awaits clarity on whether this truce can lead to a lasting resolution or merely delay further conflict. For now, the agreement offers hope for stabilisation, with global markets rallying on the news, as the U.S. dollar hit a one-month high.