5/13 – International News & Global Economic Update

After months of rising economic tension and tit-for-tat tariff battles, the United States and China have reached a major breakthrough. The two countries agreed to significantly reduce punitive tariffs on each other’s goods. The announcement, made jointly in Geneva following two days of negotiations, marks the most substantial de-escalation in President Donald Trump’s aggressive second-term trade war.

The agreement, while temporary for now, sent immediate waves through financial markets. U.S. stocks rallied sharply, with S&P 500 futures surging 2.5%, effectively wiping out recent losses triggered by Trump’s “Liberation Day” tariff package. At the same time, gold prices—a traditional safe haven during market instability—fell by over 3%, signaling growing investor optimism.

What’s in the Deal

Under the terms of the 90-day agreement, the U.S. will reduce its second-term tariffs on Chinese imports from 145% to 30%. China, in turn, will lower its retaliatory duties from 125% to 10%. Though only a partial rollback, the dramatic scale of the reductions reflects a mutual desire to stabilize relations and engage in a strategic decoupling.

The agreement does not impact the earlier tariffs—ranging from 10% to 25%—that Trump implemented during his first term on more than $300 billion in Chinese goods. Nor does it touch the sector-specific 25% tariffs on steel, aluminum, and automobiles, or the recent Biden-era duties on electric vehicles. Instead, this truce focuses on Trump’s more recent and sweeping retaliatory tariffs, offering breathing room for both sides to return to the negotiating table.

Treasury Secretary Scott Bessent, who led the U.S. delegation alongside Trade Representative Jamieson Greer, characterized the talks as constructive. In a press conference following the Geneva meetings, Bessent emphasized that neither side wanted to fully decouple their economies, and both agreed on the need to restore balanced, sustainable trade.

The joint statement confirmed the establishment of a new permanent framework for trade dialogue, to be co-led by Bessent, Greer, and Chinese Vice Premier He Lifeng.

Importantly, the Geneva talks extended beyond tariffs. The two sides also addressed the growing U.S. concern over fentanyl and its chemical precursors, much of which are believed to originate in China. American negotiators noted that the Chinese delegation included a senior official responsible for drug enforcement, suggesting a willingness from Beijing to take more responsibility for the issue.

According to Bessent, any future trade arrangement could include purchasing agreements linked to fentanyl control measures. He signaled optimism that progress on this front could be made, particularly given China’s decision to send a high-level security expert to Geneva—a rare gesture for trade talks.

A Fragile Window for Progress

The truce, however, comes with an expiration date. The 90-day pause ends on August 10. If no comprehensive agreement is reached by then, the U.S. could reimpose tariffs at previously announced levels—including a 34% “reciprocal” tariff specific to China that Trump unveiled in April, which triggered the recent round of retaliations.

Still, U.S. officials remain confident that the current economic pressures on China give Washington a strong negotiating hand. Bessent described the U.S. as being in a structurally superior position, citing persistent trade deficits as evidence that American leverage is growing, not shrinking.

Economists welcomed the announcement as a necessary cooling-off period. Indeed, Trump’s trade war had begun to hit U.S. consumers and industries hard. Imports of Chinese goods plummeted, driving up costs and complicating supply chains. The imposition of reciprocal tariffs on U.S. allies such as Japan, South Korea, and Australia further isolated America, making a unified stance on China more difficult to achieve.

Europe Watches Closely

While the U.S. and China cool tensions, Europe is navigating its own trade friction with Washington. The 90-day U.S.-China pause runs roughly one month beyond the temporary suspension of U.S.-EU tariffs, which are set to expire in July. Brussels has already prepared a list of €100 billion in retaliatory tariffs targeting key U.S. exports, including passenger cars and aircraft. European leaders will be watching the outcome of the U.S.-China talks closely, hoping that progress there might signal room for similar breakthroughs with the Trump administration.

Analysis:

While the Geneva agreement marks a welcome pause in the trade war, it is far from a final resolution. The deepest structural issues between the U.S. and China remain unresolved: intellectual property theft, forced technology transfers, state subsidies, and market access barriers. Moreover, none of the first-term sectoral tariffs have been lifted, and many of the largest policy shifts—such as demands for TSMC’s relocation to the U.S.—remain in place.

Both sides have strong incentives to reach a fuller agreement. For the U.S., continued protectionism risks isolating allies and straining supply chains. For China, sluggish economic recovery, declining export volumes, and a weakened property sector leave it vulnerable to prolonged external shocks.

Yet the deeper contradiction persists: Trump wants to appear tough on China while reducing pressure at home. The 90-day reprieve may give markets a breather, but it does not resolve the inherent tension in a strategy that seeks confrontation while avoiding economic sacrifice. If that contradiction persists, it’s likely the truce will collapse before it matures into a lasting peace.

The U.S.-China tariff rollback is a milestone in the trade war saga, offering much-needed relief to markets and manufacturers. But its temporary nature—and the enormous distance still to cover—means the world cannot fully exhale just yet. With August looming and structural issues unresolved, this ceasefire may simply be a pause before the next escalation. What comes next will depend on whether both nations can translate tactical de-escalation into strategic compromise—or whether old patterns of confrontation reassert themselves once more.