US and China Strike Landmark Deal to Slash Tariffs, Pause Trade War Measures

GENEVA – The United States and China announced on Monday, May 12, 2025, a significant breakthrough in their protracted trade dispute, reaching a comprehensive agreement to slash reciprocal tariffs and implement a crucial 90-day pause on further punitive measures. The accord, hailed by officials as a decisive step towards ending the trade war that has strained global markets, followed intense negotiations in Geneva.

U.S. Treasury Secretary Scott Bessent confirmed the details after concluding talks with Chinese officials. He stated that under the terms of the agreement, tariffs between the two economic powerhouses would see a substantial reduction, decreasing by over 100 percentage points. The target tariff rate for reciprocal trade is now set at a significantly lower 10%.

The announcement of this truce immediately resonated across financial markets. U.S. stocks experienced a strong rally on Monday, reflecting investor optimism over the de-escalation of trade tensions. The S&P 500 index jumped a robust 3.2%, while the Dow Jones Industrial Average surged by more than 1,100 points. The Nasdaq composite, heavily weighted towards technology stocks, also saw a significant rally, climbing 4.4% by the close of trading.

A Turning Point in Trade Relations?

The agreement represents a potential turning point after years of tit-for-tat tariff impositions that have impacted supply chains, increased costs for businesses and consumers, and created significant uncertainty for the global economy. The trade war began with the U.S. imposing tariffs on Chinese goods, citing issues related to trade deficits, intellectual property theft, and forced technology transfers. China responded with retaliatory tariffs on American products, escalating the dispute.

While the full text of the agreement has not yet been publicly released, the commitment to a drastic reduction in tariff rates – from what were, in some cases, punitive levels exceeding 100% down to a universal 10% – signals a willingness from both sides to find common ground. The 90-day pause is intended to provide a window for implementation and potentially further negotiations on remaining sticking points.

Details of the Accord

The reduction in tariff rates is expected to provide considerable relief to sectors heavily impacted by the trade conflict, including agriculture, manufacturing, and technology. Businesses that have struggled with increased import costs and reduced export markets may now see opportunities for recovery and growth. The move to a flat 10% tariff rate is seen by some as a simplification of a complex tariff landscape that had evolved over the course of the dispute.

U.S. Treasury Secretary Bessent’s statement underscored the depth of the cuts agreed upon. A decrease over 100 percentage points highlights the extent to which tariffs had been elevated from baseline levels prior to the trade war. The new 10% rate is intended to establish a more stable and predictable trading environment between the world’s two largest economies.

The decision to implement a 90-day pause on imposing new measures is also a critical component of the deal. This period is expected to be used to ensure that the agreed-upon tariff reductions are effectively implemented and to monitor compliance. It may also serve as a cooling-off period, allowing diplomats and trade representatives from both countries to continue discussions on broader structural issues that contributed to the trade war.

Market Reaction and Future Outlook

The positive reaction in the U.S. stock market on Monday, May 12, 2025, serves as a powerful indicator of how deeply investors desired a resolution to the trade conflict. The substantial gains seen across major indices – the S&P 500’s 3.2% jump, the Dow’s more than 1,100 point rise, and the Nasdaq composite’s 4.4% rally – demonstrate the widespread belief that reduced trade barriers will bolster economic activity and corporate profitability.

However, observers caution that the 90-day pause is just that – a temporary halt. The success of this agreement in permanently ending the trade war will depend on the ability of both nations to navigate complex implementation details and address underlying disagreements within the specified timeframe. Failure to make further progress could potentially see tensions reignite after the 90-day period concludes.

For now, the agreement reached in Geneva offers a significant respite and a clear path forward for the United States and China to normalize trade relations and alleviate the economic pressures that have built up over the past several years. The coming three months will be critical in determining whether this landmark deal delivers on its promise of a lasting peace in the global trade landscape.