NEW: US, China (Mostly) Pause Tariffs for 90 Days

Well, well, well. It seems as though cease fires are all the rage in Washington this weekend. Just two days after Marco Rubio convinced India and Pakistan to stop shooting at each other — mostly — the US and China decided to pause their trade war as well:

News yesterday indicated some sort of agreement had been made, but later comments from both sides indicated that only “progress” had taken place. A few hours ago, however, both sides confirmed the economic equivalent of a cease-fire. Or perhaps more accurately, a less-fire:

U.S. Trade Representative Jamieson Greer said the U.S. agreed to drop its 145% tariff rate on Chinese goods by 115 percentage points to 30%, while China agreed to lower its rate on U.S. goods by the same amount to 10%.

Greer and Treasury Secretary Scott Bessent announced the tariff reductions at a news conference in Geneva.

The two officials struck a positive tone as they said the two sides had set up consultations to continue discussing their trade issues. Bessent said at the news briefing after two days of talks that the high tariff levels would have amounted to a complete blockage of each side’s goods, an outcome neither side wants.

“The consensus from both delegations this weekend is neither side wants a decoupling,” Bessent said. “And what had occurred with these very high tariff … was an embargo, the equivalent of an embargo. And neither side wants that. We do want trade.”

The formula’s imbalance suggests that the US tariff penalty of 20% for China’s fentanyl-precursor trade remains in place. (The WSJ later confirmed it.) It’s curious that China would agree to that imbalance even in the short run; they have been publicly defiant on all of the American tariffs. It may be that they couldn’t get Scott Bessent and Jamieson Greer to back down on fentanyl trafficking, which is a large part of what triggered the trade wars, and not just with China but also Canada and Mexico. It may also be that the two sides are close enough on that issue to make this less of a stumbling block. It’s something to watch.

The bigger question is why the US chose to cut a deal — even with remaining tariffs at a more reasonable level — with China. Trump had made it look as though he wanted to isolate China economically and strategically, in large part because of their deceptive trade and labor practices but also because of their clear ambitions to dominate the world politically, economically, and militarily. After a few tweaks, it appears that Trump and his team were reorienting “Liberation Day” into a Western alliance for that purpose. 

Today, however, Bessent indicated that the US only sought “balance”:

“We want more balanced trade,” he said. “And I think that both sides are committed to achieving that.”

Hmmmm.

At any rate, the markets love the news, even if it’s merely a ‘pause’:

The agreement lowered tariff levels more than Wall Street expected and came after just two days of talks. U.S. stock futures, which were higher ahead of the announcement, surged. That put the S&P 500 on course to open above where it stood on April 2, when Trump’s “Liberation Day” tariffs sent markets into a tailspin.

Contracts tied to the tech-heavy Nasdaq-100 climbed more than 3.5%. The dollar jumped and bond yields rose. Shares of companies that had been punished by the trade war, such as Amazon, Apple and Tesla, advanced in premarket trading.

Overseas markets also got bullish:

A spokesperson for China’s Ministry of Commerce said that Beijing hopes the U.S. will “continue to move forward in the same direction with China, completely correct the erroneous practice of unilateral tariff hikes, and continually strengthen mutually beneficial cooperation.”

The trade war has caused Chinese exports to plunge and the U.S. has seen its first quarterly GDP contraction since 2022.

Markets surged on Monday in the wake of the tariff pause news. Hong Kong’s Hang Seng index was up by almost 3% during Asian afternoon trading, while U.S. stock futures climbed sharply.

Of course, tariffs still went up from zero to 30% on China’s imports [see update]. That’s still a win over the status quo of April 1 — but only if it results in free and fair trade with China. This is just a pause on the way to some sort of deal, which likely will be seen in the next few weeks, and those tariffs may yet come down even further, but they are still applied and will still impact prices. If the deal does not include some very significant concessions on China’s manipulations of trade, labor, and intellectual property theft, this may wind up being a very large demonstration project in the end. 

Update: VIP members are reminding me that tariffs weren’t zero before April 2; they were at 20%, based on the first Trump administration’s actions. So it’s not much more than a return to the status quo ante.