Bessent's China Trade Breakthrough: US-China Slash Tariffs 115% in Historic 90-Day Truce
The Breakthrough: How Bessent Achieved the Unexpected US-China Trade Truce
In what many analysts are calling a surprising diplomatic victory, US Treasury Secretary Scott Bessent has successfully negotiated a significant de-escalation in the trade war between the United States and China. Following two days of high-stakes talks in Geneva, Switzerland this past weekend, both countries announced a 90-day pause on most tariffs, with duties set to decrease by an impressive 115 percentage points on both sides. This development comes as a welcome relief to global markets that had been reeling from the escalating trade tensions between the world's two largest economies.
The agreement, announced on Monday, will reduce American tariffs on Chinese imports from a punishing 145% down to 30%, while China's retaliatory tariffs will plummet from 125% to 10%. This dramatic reduction exceeds what many market analysts had anticipated, with some expecting tariffs to drop only to the 50-60% range. The magnitude of this tariff reduction has been described by market watchers as 'better than expected,' 'more workable,' and even a 'dream scenario.'
Secretary Bessent, who led the US delegation in the negotiations, described the talks as 'productive and constructive,' emphasizing that both sides had reached 'substantial progress.' Chinese Vice Premier He Lifeng, who headed the Chinese delegation, characterized the discussions as 'an important first step' toward addressing existing differences between the two economic powerhouses.
The Road to Geneva: How We Got Here
The path to this weekend's breakthrough was paved with months of escalating tensions. When President Trump returned to office in January 2025, he quickly implemented his promised tariff strategy, imposing duties on numerous countries but eventually focusing primarily on China, which he views as America's principal economic competitor.
By April 2025, the situation had deteriorated into what many economists described as an effective trade embargo, with US tariffs on Chinese goods reaching as high as 145% and China retaliating with 125% tariffs on American products. This tit-for-tat escalation created significant disruptions in global supply chains and raised concerns about potential shortages on store shelves reminiscent of those experienced during the pandemic.
Pressure began mounting from various quarters. Retail leaders appealed to Trump and his economic advisors, warning that sustained high tariffs could lead to supply chain disruptions and product shortages. Meanwhile, economic data showed signs of strain in both economies, with the United States experiencing its first quarterly decline in GDP since early 2022 as importers rushed to bring in goods before the steep tariffs took effect. In China, exports to the US plummeted sharply last month, adversely affecting the country's vast manufacturing sector, with Chinese factory activity contracting at its fastest rate in 16 months in April.
Inside the Geneva Negotiations
The weekend talks in Geneva brought together Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer representing the United States, while Chinese Vice Premier He Lifeng led the Chinese delegation. The negotiations took place at a Swiss government villa overlooking Lake Geneva, providing a neutral and picturesque setting for what would become a pivotal moment in US-China economic relations.
According to sources familiar with the discussions, the negotiations were characterized by a respectful and constructive atmosphere, despite the significant tensions that had built up between the two nations. Secretary Bessent later described the talks as 'always respectful' and indicated that they had established a 'meeting mechanism' for ongoing dialogue.
While specific details of the negotiation process remain private, it's clear that both sides came prepared to find common ground. Bessent noted that the US delegation 'arrived with a list of challenges we sought to address,' and expressed satisfaction with the progress made. The speed with which an agreement was reached surprised many observers, with US Trade Representative Greer remarking, 'It's crucial to recognize how swiftly we reached an agreement, which suggests that the discrepancies may not have been as substantial as previously believed.'
Key Terms of the Agreement
The agreement announced on Monday contains several key provisions that will shape US-China trade relations over the coming months:
1. Tariff Reductions: The most significant aspect is the dramatic reduction in tariffs. The US will cut tariffs on most Chinese imports from 145% to 30%, while China will reduce its tariffs on American products from 125% to 10%. These reductions will take effect by May 14, 2025.
2. 90-Day Timeframe: The tariff reductions are set for an initial period of 90 days, during which both sides will engage in further negotiations toward a more comprehensive agreement.
3. Consultation Mechanism: Both countries have agreed to establish a framework for ongoing discussions regarding economic and trade relations. This mechanism will be led by Chinese Vice Premier He Lifeng and US Treasury Secretary Scott Bessent, along with US Trade Representative Jamieson Greer.
4. Meeting Structure: The agreement specifies that future discussions may take place alternately in China, the United States, or a mutually agreed third country, with working-level consultations on relevant economic and trade matters as needed.
5. Non-Tariff Measures: China has agreed to suspend or cancel certain non-tariff countermeasures against the US that were implemented since April 2, including export restrictions on rare-earth minerals and the addition of American companies to 'unreliable entity' and 'export control' lists.
6. Fentanyl Tariffs Remain: Notably, Trump's 20% tariffs on fentanyl-related products from China, enacted in February and March, will remain in place. Secretary Bessent described the fentanyl issue as 'the upside surprise for me from this weekend,' indicating that it was a significant topic during the talks.
Market Reaction and Economic Impact
The announcement of the US-China trade agreement triggered an immediate and positive response in global financial markets. US stock futures surged, with Dow futures rising by over 2%, S&P 500 futures increasing by nearly 3%, and the tech-focused Nasdaq Composite futures climbing by more than 3.5% during afternoon trading in Asia. Asian markets also responded favorably, with Hong Kong's Hang Seng index closing approximately 3% higher.
Currency markets saw the US dollar strengthen against other major currencies, while gold prices, which typically decline when investor confidence increases, also fell. The 10-year Treasury yield experienced gains, reflecting improved economic sentiment.
Analysts at Goldman Sachs adjusted their stock targets upward, citing renewed momentum for 'Buy America.' Deutsche Bank analysts expressed that their sentiment had been significantly improved by the developments, leading them to anticipate that US stocks would outperform their European counterparts in the near term. 'Today's announcement exceeds even our optimistic expectations,' they stated. 'We believe this news is not only better than we had hoped but also surpasses what the market would have predicted back in March.'
For businesses and consumers, the tariff reductions are expected to bring immediate relief. The lower tariffs should reduce costs on imported goods, especially electronics and manufactured products, potentially easing inflationary pressures. For businesses, the reduced tariffs mean lower costs on materials and increased opportunities for exports, particularly in agriculture and industrial sectors.
Looking Ahead: The Next 90 Days and Beyond
While the agreement represents a significant de-escalation in trade tensions, it is important to note that it is temporary in nature. The 90-day timeframe establishes what Secretary Bessent described as 'a baseline' for further negotiations toward a more comprehensive and permanent trade framework.
President Trump has indicated that he intends to communicate with Chinese President Xi Jinping soon, possibly by the end of this week. During a press briefing at the White House on Monday, Trump emphasized that many of the tariffs he had enacted would still remain in effect and that the forthcoming discussions would partially focus on 'opening up' the Chinese market to American enterprises.
Secretary Bessent has expressed optimism about continuing trade discussions with Chinese representatives in the coming weeks. 'We accomplished a lot in just two days, so I would expect that in the coming weeks we will reconvene to advance towards a more comprehensive agreement,' he shared during an appearance on CNBC's 'Squawk Box.'
The negotiations are expected to address a wide range of complex topics, including intellectual property rights, currency manipulation, steel dumping, semiconductors, agriculture, and fentanyl. Commerce Secretary Howard Lutnick has acknowledged that reaching a comprehensive deal with China might require 'dozens' of negotiation rounds, emphasizing that the immediate focus is on reducing tensions.
National Economic Council Director Kevin Hassett has predicted a revitalization of relationships, noting that 'the Chinese appear eager to collaborate and normalize trade relations.' He also anticipated 'a lot more deals' with other countries outside of China in the coming weeks, suggesting that the US-China agreement could set a precedent for other trade negotiations.
What This Means for Global Trade
The US-China trade agreement has implications that extend far beyond the bilateral relationship between these two economic giants. As the world's two largest economies take steps to normalize trade relations, the positive effects are likely to ripple throughout the global economy.
First, the agreement reduces uncertainty in global markets, which had been a significant drag on investment and growth. The prospect of a prolonged trade war between the US and China had led many businesses to delay investment decisions and reconfigure supply chains, often at considerable cost. The tariff reductions and commitment to further negotiations provide a more stable environment for business planning.
Second, the agreement may signal a broader shift in US trade policy under the second Trump administration. The successful negotiation with China, following the recent trade agreement with the UK, suggests that the administration may be pivoting from its initial aggressive tariff strategy toward a more negotiation-focused approach. As Trump mentioned, the US has 'many trade deals in the hopper,' indicating that similar agreements with other trading partners may be forthcoming.
Finally, the agreement demonstrates that economic interdependence remains a powerful force in international relations. Despite the political tensions and rhetoric about 'decoupling,' the reality is that the US and Chinese economies are deeply intertwined. As Secretary Bessent noted, 'The consensus from both delegations this weekend is that neither party desires a decoupling.' This recognition of mutual economic interest provides a foundation for managing the complex relationship between these two global powers in the years ahead.
