World markets pop as US, China ease trade tensions with temporary tariff cuts

WASHINGTON, May 13 — Global stock markets surged on Monday after the United States and China agreed to slash steep tariffs for at least 90 days, tapping the brakes on a trade war between the world’s two biggest economies that had fuelled fears of a global recession.

But the temporary pause did little to address the underlying schisms that led to the dispute, including the US trade deficit with China and President Donald Trump’s demand for more action from Beijing to combat the fentanyl crisis.

While investors cheered the move, businesses were seeking more clarity.

Under the temporary truce, the US will cut extra tariffs it imposed on Chinese imports last month from 145 per cent to 30 per cent for the next three months, while Chinese duties on US imports will fall to 10 per cent from 125 per cent.

In addition to the tariff reductions, China agreed to lift export countermeasures issued after 2 April, including restrictions on rare earth minerals and magnets used widely in high-tech manufacturing, US Trade Representative Jamieson Greer said in an interview with Fox News.

Financial markets welcomed the reprieve in a conflict that had brought nearly US$600 billion in two-way trade to a standstill, disrupting supply chains and triggering job losses.

Wall Street stocks closed sharply higher, with the S&P 500 reaching its highest level since 3 March and the tech-heavy Nasdaq Composite recording its best close since 28 February.

The US dollar rose while safe-haven gold prices fell as the news eased – but did not eliminate – concerns that Trump’s trade war could severely damage the global economy.

Trump and his allies hailed the agreement as proof that his aggressive tariff strategy was paying off, following earlier preliminary pacts with the United Kingdom and now China.

“They’ve agreed to open China, fully open China, and I think it’s going to be fantastic for China, I think it’s going to be fantastic for us, and I think it’s going to be great for unification and peace,” Trump said at the White House.

It remains unclear whether the deep trade imbalances that have weakened US manufacturing will be resolved.

Even US Treasury Secretary Scott Bessent, who hammered out Monday’s agreement with Chinese counterparts during weekend talks in Geneva, acknowledged that it would take years to reset Washington’s trade relationship with Beijing.

China’s state media said Beijing stood firm on its principles while opening a path to greater cooperation with the US, marking a shift in tone from a week earlier.

“Economic and trade cooperation between China and the US has a deep foundation, great potential and broad space,” government broadcaster CCTV said in a commentary.

Trump campaigned in the 2024 election on addressing unfair trade practices and reviving US manufacturing capacity, securing votes from blue-collar workers in states like Michigan and Pennsylvania that have lost industrial jobs for decades.

But Trump’s tariff policy also faced criticism. Small businesses and truckers braced for major repercussions, while US consumers worried about rising prices.

Scott Kennedy, a China business and economics expert at the Center for Strategic and International Studies in Washington, said the administration needed to pull back or risk severe damage to the US economy.

“This is 100 per cent a retreat by the US, not a Chinese cave,” Kennedy said. “The US was the one that launched the trade war and escalated it. The Chinese retaliated and they’ve only withdrawn their retaliatory measures.”

But Kelly Ann Shaw, an attorney with Akin Gump Strauss Hauer & Feld and a former trade adviser in Trump’s first term, said Trump was simply delivering on his campaign pledges.

“The president is doing what he said he would. This is absolutely about resolving disparities in the trading relationship,” she said.

She acknowledged that 90 days was not much time to address major US concerns over non-tariff barriers such as subsidies for capital and labour.

“They’ve got their work cut out for them.”

On-and-off approach

Seeking to reduce the US trade deficit, Trump targeted countries worldwide with a range of tariffs, imposing especially aggressive levies on China, which he blames for worsening the US fentanyl crisis.

Markets shuddered in response, and last month Trump paused most of his “reciprocal” tariffs on dozens of countries – except China.

Trump’s inconsistent approach has unsettled investors and weakened his approval ratings among voters concerned that tariffs will drive up prices on goods from toys to cars.

The remaining US tariffs on Chinese imports are still stacked atop prior duties. Even before Trump returned to office in January, China had faced 25 per cent tariffs on many industrial goods from his first term, with lower rates on some consumer goods.

The agreement leaves those duties unchanged, along with tariffs of 100 per cent on electric vehicles and 50 per cent on solar products imposed by former president Joe Biden.

Retailers may adopt a wait-and-see stance on the 30 per cent tariffs that would raise prices for shoppers, said Gene Seroka, executive director of the Port of Los Angeles, the main entry point for Chinese imports into the US.

Monday’s accord also excludes “de minimis” exemptions for low-value e-commerce shipments from China and Hong Kong, which the Trump administration scrapped on 2 May.

However, the tariff cuts were deeper than many analysts had predicted. Last week, Trump had floated a much higher rate of 80 per cent.

Shipping industry officials said the temporary cuts may encourage companies to restart shipments while the lower tariffs are in effect, but the uncertainty surrounding a long-term deal may limit broader moves to ramp up orders.

Mike Abt, co-president of family-owned Abt Electronics in Chicago, said the company was still working through inventory stockpiled before the tariffs were imposed.

“Everyone wants consistency, and that’s been the hard part of this whole thing,” he said. “It’s so fluid. It’s like a game of Risk – you really don’t know what the right answer is.”

Within the administration, the truce marked a win for Bessent, a former hedge fund executive who had pushed for the earlier 90-day pause in reciprocal global tariffs to allow time for negotiations.

“The consensus from both delegations this weekend is neither side wants a decoupling,” Bessent said after the Geneva talks. “We want more balanced trade, and I think that both sides are committed to achieving that.”

Bessent said the next meeting had not yet been scheduled, but the two sides were prepared to continue negotiating. — Reuters