US and China agree 90-day pause – to cut tariffs by 115%
Newsflash: the US and China have agreed to lower tariffs on each other’s goods substantially for 90 days, following their negotiations last weekend.
Speaking in Geneva, treasury secretary Scott Bessent says that “both sides will move their tariffs down by 115%” (ie, 115 percentage points), having agreed a 90-day pause.
That’s a significant de-escalation in the trade war that blew up last month. Before today, the US had lifted its tariff on China to 145% (including the 20% tariff added to tackle fentanyl imports into the US), with Beijing having retaliated with 125% tariffs on US imports.
Bessent tells reporters that “both sides showed great respect” during their talks, and that “we both have an interest in balanced trade”.
Key events
“Well, that de-escalated quickly”.
That’s ABN Amro’s take on this morning’s trade war ceasefire between the US and China.
They told clients:
Of course, any increase in tariffs is likely to be bad news for the global economy, as it will slow trade flows.
It is also going to be painful for US consumers, as they pay tariffs on imports.
George Lagarias, chief economist at Forvis Mazars, warns that while the US-China trade deal may be good news in the short term, they may not outweigh increasing uncertainty.
Lagarias adds:
“Despite a very positive market reaction to the US-China pause it would be premature to celebrate a breakthrough in the global trade impasse. A “business deal” with the UK and a “pause” with China don’t constitute comprehensive “trade deals”.
Time will show whether the global supply chain is robust enough to sustain such uncertainty without a costly and inflationary adjustment to cover uncertain outcomes. A 10% tariff base scenario between the US and the rest of the world, is still an adverse economic outcome.”
With imports from China now incurring a 30% tariff, down from 145%, there is now arguably a cap on how high America may set tariffs on other nations.
And with the UK still facing the 10% universal tariff, despite last week’s trade deal, we can also see a floor on those tariff rates.
George Saravelos, currency analyst at Deutsche Bank, explains:
The UK has one of the least imbalanced relationships with the US and now has a universal tariff rate of 10%. China has one of the most imbalanced relationships and now has a tariff rate of 30%.
It is reasonable that these two numbers now set the bounds of where American tariffs will end up this year, a material increase in visibility from just last week. The China ceiling is of course the most notable; it is materially lower than many market participants would have assumed at the start of the year. Also of note is the implicit open-ended nature of the 90-day tariff pause (Bessent: “as long as talks are on track”) and persistent references to a desire to avoid economic decoupling.
Saravelos also argues that the global growth outlook is improving, thanks to lower trade tensions, many countries planning fiscal easing, and oil prices having fallen.
And thirdly, he reckons the Trump administration is shifting to a less aggressive stance across multiple fronts.
Saravelos explains:
Other notable developments include the departure of Elon Musk from DOGE, explicit statements from President Trump he will not seek Powell’s removal, a more conciliatory stance towards Ukraine following the bilateral Zelensky – Trump meeting in the Vatican.
The one policy area where uncertainty remains very high is the US fiscal stance, with visibility still low on how the Republican fiscal hawks and doves will reconcile their differences. The US budget is critical in obtaining greater medium-term visibility for US growth, the Fed and the dollar: it is likely the only material fiscal event during the entirety of the Trump administration.
Stocks are creeping higher in London, where the FTSE 100 share index is now up 56 points, or 0.66%, at 8611 points.
It’s on track to end the day at its highest close since 1 April, the day before Donald Trump’s “Liberation Day” tariff announcement.
German shipping company Hapag-Lloyd has welcomed the agreement between the United States and China to temporarily slash reciprocal tariffs.
Hapag-Lloyd says it expects to see increase in bookings from China to the US.
It told Reuters:
“We expect bookings from China to the U.S. to increase, which should help us … into peak season.
“Originally, we had planned to use smaller ships for transports from China to (the U.S. coasts) but may reverse that if demand is strong.”
Bank of England policymaker Megan Greene has warned today that measures of wage growth and inflation are still too high, even though they’re moving in the right direction.
Greene explained that she was worried about rising public inflation expectations.
Speaking at the Bank of England Watchers conference today, Greene said:
“What’s a little bit more worrisome for me is that medium-term inflation expectations have also started picking up.”
Greene was one of the five policymakers who voted to cut UK interest rates by a quarter of one percentage point last week, to 4.25%, in a three-way split.
Channelling Natalie Imbruglia, Greene revealed:
“I came into this last round quite torn about whether to hold or cut by 25 basis points.”
Aberdeen: Tariff cuts are a ‘big deal’
Today’s US-China tariff cuts are “a big deal”, says Paul Diggle, chief economist at investment group Aberdeen.
Diggle explains:
Taking everything into account we estimate the average US tariff on China is now 27%. As a result, the US weighted average tariff rate is now c. 12%, well down from the post-liberation day peak of 28%.
With talks continuing, the key issues are whether a full deal to lower tariffs permanently in exchange for mutually beneficial concessions can be agreed. We think probably yes, but at tariff levels which, while well down from the peaks, will be up from where they were at the start of Trump’s 2nd term (and maybe up from here). While both sides came out of the talks saying they weren’t seeking “economic de-coupling”, the US highlighted “five or six strategic industries” (think pharmaceuticals or steel) where it’s looking for “strategic rebalancing”.
Diggle adds that “an underlying slowdown” is probably getting underway in the US economy, with other economies also weakened by the trade war.
Away from financial markets, in the real economy, businesses will still be delaying investment decisions. However, this probably reduces some of the recessions risks.
It’s important not to over-extrapolate, the more markets are up, the more Trump may feel he can push again. And the economic slowdown is only just getting underway.
In the rest of the world there is still a growth slowdown and inflation reduction coming, even if not as severe as feared immediately post liberation day. So we expect lower growth, lower inflation, lower interest rates, in the likes of the UK.”
Government borrowing costs are rising today too.
The yield, or interest rates, on US 10-year Treasury bills has risen by 7 basis points (0.07 percentage points) to 4.44%, with other Treasury yields also higher.
That may reflect improved sentiment in the markest today, as investors rotate out of safe-haven assets.
Investors have also been trimming their expectations for interest rate cuts, which would imply higher bond yields.
But even so, this market reaction may not please US treasury secretary Scott Bessent, who has previously said his focus is on keeping 10-year U.S. Treasury yields low (to lower the cost of rolling over America’s debt pile).
A large 90-day coordinated tariff reduction by the world’s two largest economies – from 125% to 10% for China and from 145% to 30% for the US – has spurred major global market movements, including higher stocks and bond yields, a stronger dollar, a rise in oil prices, and lower… pic.twitter.com/TtsPf8TcVA
— Mohamed A. El-Erian (@elerianm) May 12, 2025
Wall Street is on track for a strong rally when trading begins in New York.
Investors are expected to welcome the news that the US and China have de-escalated their trade war, following negotiations in Geneva last weekend.
The Dow Jones industrial average is up 2.5% in the futures market, while the broader S&P 500 is on track to rally by over 3%.
Gold has dropped notably today, as investors shun safe-haven assets.
The price of an ounce of gold is now down 3.4% today at $3,211, as riskier assets such as shares are snapped up instead.
Analysts at Dutch bank ING have lifted their forecast for China’s growth this year, following this morning’s agreement with the US.
ING predict there will now be a jump in exports from China to the US, which had dropped once American imports importers faced paying a 145% tariff on goods.
Lynn Song, ING’s chief economist for Greater China, explains:
In terms of impact on China’s growth, the 90-day ceasefire will upgrade our second and third quarter growth outlook. We suspect that China’s May and June exports to the US will bounce back sharply as importers with depleted inventories will take advantage of the ceasefire to resume imports. Depending on how talks proceed, we could see a frontloading of exports again in July and August, especially if there is not much clarity on a longer-lasting bargain being struck heading into the later stages of the 90-day period.
We are reverting our forecast for the year back to 4.7%, with further upside possible if a bilateral agreement is reached within the 90-day period.
*ING UPGRADES CHINA GDP FORECAST TO 4.7% FOR 2025 AFTER US DEAL
— Max HarryHindsight Capital (@MaxDrake007) May 12, 2025
Over in Toyko, there are reports that Nissan Motor has decided to cut another 10,000 jobs globally.
Added to previously announced cuts, it would increase Nissan’s total layoffs to about 20,000 or 15% of its workforce, Japan’s public broadcaster NHK reported.
Last month, Nissan announced it expects to lose as much as £4bn this year, as its turnaround plan proves more costly than expected. Like other carmakers, it has also been hit by Donald Trump’s tariffs, which include new levies on cars made overseas.
Maersk: US-China deal is a step in the right direction
Danish shipping group Maersk has welcomed the de-escalation between the US and China.
Maersk says the agreement to introduce a 90-day pause on tariffs and reciprocal duties was a step in the right direction.
Maersk’s share price has surged by 12.5% this morning, which reflects relief in the markets about this morning’s announcement.
Cranswick shares tumble after Lincolnshire pig farm cruelty claims
Back in the City, shares in UK meat producer Cranswick have tumbled after Tesco, Sainsbury’s, Asda and Morrisons all suspended supplies from a Lincolnshire pig farm linked to abuse against pigs.
Cranswick is the biggest faller on the FTSE 250 index of medium-sized companies, down 7.5%.
My colleague Sarah Butler reported yesterday:
Secretly filmed footage has shown farm workers at Northmoor Farm appearing to grab piglets by their hind legs and smashing them on to the hard floor – a banned method of killing known as blunt force trauma or “piglet thumping”.
Other harrowing footage from the farm owned by one of the UK’s biggest pig meat producers, Cranswick, showed a sow being kicked and beaten with metal bars, as well as a botched killing that left an animal writhing in agony, as first reported by the Mail on Sunday.
One worker who failed to kill a sow with several shots from a bolt gun, reportedly told an undercover investigator: “Don’t let nobody see you doing like what we did [sic].”
A truce, although welcome, is not the same as a peace treaty.
Mark Williams, chief Asia economist at Capital Economics, points out that “a lasting ceasefire” can’t be guaranteed, telling clients:
The US and China have each suspended for 90 days all but 10% of their Liberation Day tariffs and cancelled other retaliatory tariffs.
This is a substantial de-escalation. However, the US still has much higher tariffs on China than on other countries and still appears to be trying to rally other countries to introduce restrictions of their own on trade with China.
In these circumstances, there is no guarantee that the 90-day truce will give way to a lasting ceasefire.
Talk of “trade deals” has helped undo the damage from Donald Trump’s Liberation Day, reports Dario Perkins, economist at TS Lombard.
The ever-quotable Perkins gives credit to Treasury secretary Bessent, saying:
Equities have bounced even with tariffs much higher than at the start of the year, and with massive uncertainty about what the next six months will bring.
It helps that Scott Bessent has become the main spokesman for Trump 2.0. He has a real talent for sanewashing policies to make them look intellectually coherent and “market friendly”.
AJ Bell: Agreement to roll back tariffs is ‘a pleasant surprise’
“Markets have welcomed the tentative US-China trade agreement with open arms,” says Russ Mould, investment director at AJ Bell.
“While the trade spat has only been dialled back for 90 days, it’s a major breakthrough as far as investors are concerned. The fact the two countries were talking was already a major win given they’ve been at each other’s throats during the first and second Trump presidential terms.
“Some people thought the best-case outcome from the weekend’s discussions would be an agreement to simply keep talks going. Therefore, to have reached an initial deal so quickly and one that rolls back tariffs by a large amount is a pleasant surprise.
“The UK-US trade deal last week made it perfectly clear that Trump wasn’t going to get rid of tariffs completely. If one of its greatest allies is forced to still have a 10% base tariff, there is no way that tariffs on China would have disappeared completely upon a trade deal.
“Lowering tariffs on Chinese goods from 145% to 30% is a big deal and one that significantly lessens the blow to the Asian economy. As ever, it’s clear that these deals aren’t even sided. China is cutting duties on US imports from 125% to 10%. That’s the same percentage point reduction as on the other side of the coin, but the US is still subject to lower tariffs.
“The next 90 days are going to be crucial in determining the longer-term tariff levels between the two countries. It would only take China upsetting Trump once for him to rip up the 90-day deal and revert back to sky-high tariffs. China won’t want to come across as weak in any discussion and is certainly not a push-over, yet it will be cognisant of the situation’s fragility.
Full story: China and US agree 90-day pause to trade war
China and the US have agreed a 90-day pause to the deepening trade war that has threatened to upend the global economy, with reciprocal tariffs to be lowered by 115 percentage points.
Speaking to the media after talks in Geneva, the US treasury secretary, Scott Bessent, said both sides had shown “great respect” in the negotiations, my colleague Amy Hawkins writes.
Bessent said: “The consensus from both delegations this weekend was neither side wants a decoupling”.
More here:
A spokesperson for China’s ministry of commerce has said today:
“This move meets the expectations of producers and consumers in both countries, as well as the interests of both nations and the common interest of the world.
“We hope that the US side will, based on this meeting, continue to move forward in the same direction with China, completely correct the erroneous practice of unilateral tariff hikes, and continually strengthen mutually beneficial cooperation.”
