Global financial markets surged on Monday following a significant development in U.S.–China trade relations. The two economic powerhouses agreed to a 90-day mutual reduction in tariffs, a move that aims to cool down months of escalating tensions and restore some predictability to global trade.
Key Developments
The United States announced it will reduce tariffs on Chinese imports from 145% to 30%, while China committed to lowering its tariffs on American goods from 125% to 10%. This agreement, while not a final resolution, marks the most concrete sign of cooperation between the two sides in recent months. It effectively buys both countries time to return to the negotiating table without immediately damaging their domestic markets.
Despite the truce, structural issues such as intellectual property enforcement, state subsidies, and market access remain unresolved. Officials from both countries acknowledged the 90-day pause as a strategic opportunity — not a breakthrough — and have committed to continued discussions in Geneva later this month.
Investor Sentiment
Investors responded positively to the temporary easing, viewing it as a sign that neither side wants to push the global economy into deeper uncertainty — at least for now. However, while risk appetite returned, there was no sense of euphoria. The general tone remains cautious, with institutional money hesitant to treat the truce as a turning point.
There is widespread awareness in the market that this is a fragile pause, not a permanent solution. Many portfolio managers are treating the rally as technical rather than fundamental, using it to rebalance exposure rather than chase momentum.
Market Reaction (May 12, 2025)
The strong equity rally was accompanied by a sell-off in safe-haven assets like gold, and strength in the U.S. dollar, suggesting that risk sentiment improved broadly across asset classes.
Looking Ahead
While the short-term market response is encouraging, the durability of this optimism will depend on whether the U.S. and China can translate this 90-day pause into lasting commitments. Markets will be watching closely for follow-up language from Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng as talks resume in Geneva. Any signs of regression — especially public threats of tariff reinstatement — could unwind gains quickly. Until then, the tariff truce stands as a welcome, if temporary, relief for investors.
