US and China Set to Reduce Tariffs Amid 90-Day Negotiation Window

By Jenny leonard
May 12, 2025 (Bloomberg) – In a surprising turn of events, the US and China have agreed to temporarily reduce tariffs on each other’s goods, easing trade tensions and giving both nations three months to negotiate a more extensive deal. The hefty US tariffs on most Chinese imports, which currently sit at an astonishing 145%, will be slashed down to 30% by May 14. Meanwhile, China’s duties on American products will drop from 125% to just 10%, as outlined in a joint statement following discussions in Geneva.

Treasury Secretary Scott Bessent emphasized that neither country desires a complete economic separation. He mentioned in an interview that while the US aims for strategic decoupling regarding certain critical sectors—like semiconductors and pharmaceuticals—there’s still room for collaboration. This comes shortly after President Trump’s “Liberation Day” announcement on April 2, which introduced reciprocal tariffs affecting numerous countries.

Bessent noted that it’s unlikely these tariffs could fall below the new threshold of 10%.However, he hinted at potential reductions in fentanyl-related tariffs if China engages constructively with the US regarding this pressing issue. Earlier this year, Trump had imposed a notable surtax over concerns related to fentanyl trafficking.

During his briefing in Geneva, Bessent expressed optimism about future negotiations leading to purchase agreements aimed at balancing trade deficits between the two nations. He clarified that these tariff cuts do not affect other sector-specific duties imposed across all trading partners nor do they eliminate previous tariffs established during Trump’s first term.

As news broke of these tariff reductions, markets reacted positively; S&P futures surged by over three percent while oil prices climbed and Treasury yields increased as well. The offshore yuan appreciated slightly against the dollar amid this optimistic atmosphere.

In response to these developments, China announced it would suspend or revoke its non-tariff measures against American goods implemented since early april—a move welcomed by various industries facing disruptions due to export controls on rare earth materials.

China’s official Xinhua News Agency highlighted its commitment to stable relations with the US based on mutual respect rather than coercion or threats. Lynn song from ING remarked that this agreement is likely perceived as a win for China since it lowers tariffs without requiring concessions from Beijing.

The recent de-escalation follows reports indicating declining trade volumes between both countries—a situation exacerbated by earlier tariff announcements which had sent shockwaves through markets and supply chains alike. Ryan Petersen of Flexport predicted an uptick in shipping activity across the Pacific due to this temporary reprieve from heightened duties.

Trade Representative Jamieson Greer stated that achieving balanced trade remains paramount for Washington and acknowledged positive engagement from Chinese officials during recent talks. Before negotiations commenced in Switzerland, Trump suggested an aggressive approach with proposed high tariffs but ultimately left decisions up to his Treasury chief who found common ground at lower rates deemed beneficial for both sides.

Greer explained how negotiations are inherently complex but resulted in favorable outcomes for both nations while maintaining some existing measures like global baseline tariffs applicable across all trading partners alongside specific ones targeting China designed during Trump’s administration aimed at reducing bilateral deficits effectively.

While market reactions have been encouraging following reports of progress towards resolving disputes between Washington and Beijing—past context suggests reaching lasting agreements can be lengthy processes fraught with challenges; past attempts have often faltered despite initial optimism surrounding them.

In one memorable moment during discussions last weekend involving Bessent’s candidness about sensitive topics like fentanyl trafficking—which he illustrated dramatically—it became clear how serious these negotiations are viewed by all parties involved.

As we look ahead into what may unfold over coming months regarding international trade dynamics between two economic giants—the stakes remain high not just locally but globally as well.