Financial markets might finally get what they want, at least for the time being, after months of a simmering tariff war that was mostly centered on the United States and China.
After representatives from the Trump administration and China revealed plans on Monday to simultaneously reduce each other’s tariffs in an effort to ease simmering tensions, officials may have bought some market patience.
“We have reached an agreement on a 90-day pause and substantially moved down the tariff levels,” Treasury Secretary Scott Bessent stated at a press conference in Geneva on Monday after meeting with Chinese officials over the weekend. According to Bessent, the main point is that neither party want for their relationship to decouple.
The United States and China both acknowledged the “importance of their bilateral economic and trade relationship to both countries and the global economy” and “the importance of a sustainable, long-term, and mutually beneficial economic and trade relationship” in a joint statement announcing the actions.
In particular, China is lowering tariffs on U.S. goods from 125% to 10%, and the U.S. is lowering tariffs on China from 145% to 30%. Both actions are anticipated to be implemented within 90 days. According to Bessent, the United States has “had a plan” during the entire process.
As a result, there was excellent interpersonal communication and strong national interest representation from both nations. He added that there was a “process in place” and that “we came to the conclusion that we have shared interests and that we both have an interest in balanced trade.” “And we now have a mechanism for further talks with the Chinese,” Bessent added.
“I reject the notion that business as usual would have worked,” he stated.
According to Bessent, the United States also intends to carry on with a “strategic rebalancing” of sectors that were identified as supply-chain vulnerabilities during COVID-19, including steel, semiconductors, and medications. He stated that the United States has “identified five or six strategic industries and supply chain vulnerabilities and will continue moving toward U.S. independence or a reliable supplies from allies on those.”
Regarding future relations with China, he stated that the United States does desire trade, namely “more balanced trade,” and that both parties are dedicated to attaining that goal. “We would like to see China open to more U.S. goods,” he stated, largely blaming the Biden administration for what he described as an out-of-balance trade deficit.
At the end of the following ninety days, he stated, “as long as good faith efforts, engagement and constructive dialogue then we will keep moving forward.”
Bessent described the agreement to cooperate on fentanyl as a “upside surprise,” and noted that China had brought along a high-level official who is not often involved in trade negotiations. This seemed to be one favorable development for the U.S. delegation. “For the first time, the Chinese understood the magnitude of what was happening in the U.S.,” he stated.
U.S. Trade Representative Jamieson Greer noted that although there have been fruitful discussions, the duties on China relating to fentanyl remain in effect.
Wall Street opened Monday with Dow futures (YM00) up more than 800 points, continuing gains following Bessent’s remarks on Sunday that significant progress had been achieved. While oil prices (CL00), which are under pressure from growth concerns this year, increased 2.8% to $62.41/barrel, haven investment gold (GC00) fell $115 to $3,229 an ounce.
“This action appears to be more of an attempt to gain time on the surface. Over the next three months, it might help clear the path for more serious discussions. This is interpreted by markets as evidence that advancement is feasible. “It’s not a permanent solution, but it’s a positive step,” wrote Ahmad Assiri, Pepperstone’s research strategist.
But there are still more significant issues regarding the world economy. Over the past month, stock markets have had a significant recovery and are once again pricing in a lot of positive news. Markets might potentially experience another decline if the data begins to deteriorate in the upcoming months. But for the time being, investors are happy to ride the excitement of today’s news,” wrote Chris Beauchamp, IG’s chief market analyst.
