Understanding the U.S. China Tariff Reduction and Impact

In May 2025, the United States and China announced a surprising agreement to reduce bilateral trade tariffs for 90 days. This came after a prolonged period of steep reciprocal tariff increases, significantly weakening the global economy and domestic trade.

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According to Reuters, under the agreement, the U.S. reduced import tariffs on Chinese goods from 145% to 30%, while China lowered its tariffs on American goods from 125% to 10%. The primary objective of this temporary U.S.–China Tariff Truce is to ease global trade tensions and open the door for further negotiations.

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The Primary Reason Behind the U.S.-China Tariff Reduction

The main reason behind the reciprocal tariff reduction between the U.S. and China is the mutual desire to avoid economic decoupling. Both sides acknowledge the importance of bilateral trade and economic relations for their development and the global economy. They have emphasized a sustainable, long-term, and continuous relationship.

What is the Impact of Trump’s Tariff Policy on the U.S. and China?

In April 2025, the reimplementation and escalation of Trump-era tariffs reignited trade tensions between the U.S. and China. The U.S. imposed a blanket 10% tariff and even higher rates, up to 145%, on certain Chinese imports. In retaliation, China imposed tariffs as high as 125% on U.S. products, particularly in agriculture and technology.

These aggressive tariff hikes led to a sharp decline in bilateral trade, market instability, and disruption of global supply chains. In response to growing economic pressure on both sides, a 90-day tariff rollback was negotiated in Geneva, reducing U.S. tariffs to 30% and China’s tariffs to 10%. While this short-term relief offers some flexibility for economic adjustments, businesses and consumers remain cautious about the possibility of renewed tensions.

What is the Impact on Global Markets and Investors?

Reducing import tariffs between the U.S. and China could curb inflation, although the impact depends on other global economic factors. This positive impact allows central banks in Asian countries to be more flexible in setting appropriate policies for each country.

In addition, the agreement was welcomed positively by the market, as reflected in the temporary rise in several global stock indices. Reflecting investor optimism on the potential recovery of trade flows and the easing of tensions, suppressing market sentiment.

The rise was triggered by the view that the outcome of the tariff negotiations was a positive surprise that eased fears of global economic stagnation. The agreement was also seen as a first step towards normalizing trade relations, which could pave the way for a recovery in exports and cross-border investment.

The tariff reduction was seen as a positive step and met with global optimism, which supports the stock market and global economic recovery.

Sectoral Response After the U.S.–China Tariff Reduction

Following the tariff cut announcement according to Investopedia, activity surged in the technology, consumer discretionary, and energy sectors.

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- Technology and Consumer Sectors: Following the tariff reduction announcement, tech and consumer discretionary stocks surged. The S&P 500’s consumer discretionary sector led gains, rising approximately 5.5%, while the technology sector climbed 4.5%.

- Energy Sector: Energy stocks also posted gains. For example, NRG Energy soared 25% after reporting better than expected first quarter earnings and a positive outlook. Despite the upbeat momentum, global markets remain volatile, and policy uncertainty persists.

Conclusion

The temporary tariff rollback agreement between the United States and China represents a notable shift in recent trade policy, with observed effects on global markets and key sectors. Following the announcement, equity markets responded positively, particularly in the technology, consumer, and energy sectors. However, despite short-term gains, global trade dynamics remain uncertain, and continued policy monitoring will be crucial as negotiations progress.

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