Reduction in tariffs a ‘good starting point’

A breakthrough in US-China trade talks set off a relief rally in stocks on Monday and propelled the dollar higher, but investors fear further negotiations could prove a long slog, as risks of a global economic slowdown persist.

After two days of talks with Chinese officials in Geneva, US Treasury Secretary Scott Bessent said the two sides agreed to a 90-day pause on measures, and tariffs would fall by over 100 percentage points.

That leaves US tariffs on Chinese goods at 30% from May 14 to August 12 and Chinese duties on US imports at 10%. The outcome exceeded the hopes of many investors ahead of the talks.

The dollar jumped over 1% against a basket of major currencies, as the yen and Swiss franc fell along with other safe-haven assets like gold and government bonds.

“This is a relief rally that the worst case scenario in tariffs, being tariffs over 100%, is not likely to materialise,” said John Praveen, managing director at Paleo Leon in Princeton, New Jersey. “We may not get zero tariffs but the worst case is unlikely. We’ve pulled back from the brink.”

The cheer was tempered by caution, given a more permanent trade deal needs to be struck, while higher tariffs overall could still weigh on the global economy, according to a Reuters report.

“It’s long-term positive plus 90 days of uncertainty,” said Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management Co.

Michael Metcalfe, head of macro strategy at State Street Global Markets in London, estimated that Monday’s US- China deal implied an average effective tariff rate of around 15%.

“Given where expectations were, it’s a net positive,” he said. “You basically reverse the reciprocal tariff announcement, and if you reverse the reciprocal tariff announcement you are back to square one.”

US President Donald Trump had imposed tariffs of 145% on imports of Chinese goods. China in turn raised tariffs on US goods to 125% and limited exports on some vital rare earth minerals.

Those measures had brought nearly $600 billion in two-way trade to a standstill, disrupting supply chains and sparking fears the global economy could crater.

Trump’s April 2 “Liberation Day” announcement of sweeping tariffs sparked a sharp exit from US assets, including the dollar and Treasuries, mainstays of the global financial system. Heightened uncertainty over US trade policy hurt business and consumer confidence.

Investors saw signs Trump may be rethinking his trade strategy, as economic indicators have weakened and central bankers have warned of risks of slowing growth and rising inflation, the Reuters report adds.

A deal last week with Britain, plus positive noises from Japan, Vietnam and South Korea, helped restore some confidence, as have cooling geopolitical tensions.

“This is only a three-month temporary reduction of tariffs. So this is the beginning of a long process,” Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, said.

“The two sides will spend months probably, to come up with a resolution, or reach a final trade deal, but this is a very good starting point.”

Rabobank’s head of FX strategy Jane Foley said there was more optimism the tariffs will not be as devastating as many had feared, but this did not mean a return to the pre-Trump status quo.

“We still have a fair amount of uncertainty about where these tariffs will settle, their impact on world growth and central bank policy,” she said.

State Street’s Metcalfe said concerns could turn from trade to other issues. For instance, many investors wonder what Trump’s planned tax cuts will mean for US debt levels, especially as revenues from tariffs drop.

The US-China trade deal “doesn’t mean the policy uncertainty has gone away, it’s moved on to a new area,” he said.