A Temporary Pause in the Trade War
On May 12, 2025, the United States and China reached a significant milestone in their ongoing trade conflict by agreeing to reduce mutual tariffs for a period of 90 days. This truce marks a crucial pause in what had been an accelerating tariff war affecting billions of dollars in traded goods and disrupting global commerce. The U.S. pledged to lower its tariffs on Chinese imports from 145% to 30%, while China agreed to scale back its own tariffs on American goods from 125% to 10%.
The breakthrough was reached after several days of diplomatic discussions in Geneva, Switzerland, attended by U.S. Trade Representative Jamieson Greer, Treasury Secretary Scott Bessent, and Chinese Vice Premier He Lifeng. While specific details remain confidential, both parties described the outcome as “productive” and “forward-looking.” Analysts and diplomats alike have welcomed the pause as a chance to reset the tone of U.S.-China economic relations, which had been under growing strain for years.
This agreement is not a resolution to the broader conflict but is intended to offer both nations a window of opportunity to resume formal negotiations. The three-month suspension of tariffs is meant to encourage deeper talks on core issues that have long divided the world’s two largest economies.
Market Reactions and Economic Implications
Financial markets reacted swiftly and positively to the announcement. In the United States, the Dow Jones Industrial Average surged more than 900 points, an increase of 2.2%. The S&P 500 and Nasdaq followed suit, rising by 2.4% and 3.3%, respectively. The tariff rollback not only boosted investor confidence but also revived optimism for smoother trade flows and stronger corporate earnings.
Global commodity markets mirrored this enthusiasm. Crude oil prices jumped nearly 3% as fears of a slowdown in global trade began to ease. Meanwhile, the U.S. dollar strengthened against other major currencies, indicating broad investor approval. Retailers and manufacturers in both countries were particularly relieved, as the reduction in duties promises lower supply chain costs just ahead of key shopping seasons like back-to-school and year-end holidays.
Some economists estimate that the temporary truce could lift U.S. GDP by 0.3% over the next two quarters. The relief is expected to be especially beneficial for industries such as electronics, automotive, and agriculture, which have borne the brunt of rising costs during the trade standoff.
Deeper Issues Still on the Table
Despite the encouraging headlines, this agreement leaves major sticking points unresolved. The 90-day period does not address structural concerns such as forced technology transfers, intellectual property theft, or limitations on foreign companies operating in China—issues the U.S. has flagged for over a decade. On the Chinese side, concerns remain about U.S. export controls, investment restrictions, and broader protectionist tendencies.
President Donald Trump expressed cautious optimism, noting that further talks with Chinese President Xi Jinping were being planned. In a statement from the White House, Trump said, “We’re making progress, but the work is far from over.” Meanwhile, China’s Commerce Ministry issued its own statement, emphasizing the importance of “dialogue over confrontation” and a “win-win approach to trade policy.”
The coming days will likely see teams from both nations drafting the next phase of negotiation schedules. Expectations are that if significant progress is made within the 90-day window, a longer-term arrangement could emerge.
A Pivotal Moment for Global Trade
The ripple effects of this agreement stretch far beyond the borders of the United States and China. Global trade flows have been shaken by the uncertainty of the conflict, with many smaller economies caught in the crossfire. Supply chains were rerouted, investment decisions paused, and trade-dependent sectors saw significant losses.
The current truce could signal a temporary reprieve, but not a full recovery. Many observers believe that this short-term deal was driven by economic necessity, as both economies have shown signs of stress. China’s industrial production slowed more than expected in Q1 2025, while U.S. farmers and exporters have faced mounting losses from retaliatory tariffs.
For now, the pause provides a rare diplomatic opening—an invitation to both countries to chart a more stable and mutually beneficial path forward. Whether that invitation is accepted remains to be seen.