U.S.–China Trade Truce: Tariff Cuts, Economic Impact & What’s Next

U.S.–China Trade Truce: Tariff Cuts, Economic Impact & What’s Next

Immediate Impact of the Agreement on Financial Markets

Reaction in International Stock Exchanges

The recent trade agreement between China and the United States, which establishes a 90-day tariff truce, had an immediate and significant impact on global financial markets. Major stock exchanges around the world responded with euphoria, interpreting it as a de-escalation in a trade war that had threatened to push the global economy into recession.

In Asia, stock indices opened higher, driven by gains in technology and logistics companies—sectors particularly sensitive to trade flows. In Europe, Germany’s DAX index hit a new historic high, reinforcing the continent’s positive market response. On Wall Street, indices also surged sharply, reflecting investors’ relief at the pause in commercial hostilities.

Rise of the Dollar and Decline of Gold

The reaction extended beyond the stock market. In currency markets, the U.S. dollar strengthened against other currencies, solidifying its position as a safe-haven asset in a context of reduced uncertainty. Conversely, gold, a traditional safe asset in times of volatility, fell in value, signaling investors’ increased appetite for risk.

Effect on Oil and Tech Stocks

In commodities markets, crude oil prices rose, buoyed by expectations of a recovery in global trade and improved energy demand. Technology companies—particularly those relying on components or manufacturing in China—benefited the most from the truce, as it temporarily reduced the risk of disruptions or cost surges due to bilateral tariffs.

Details of the Agreement: Tariffs, Timeline, and Context

What Was Agreed and How It Affects Both Economies

After intense bilateral negotiations in Geneva, China and the United States reached an agreement that provides a breather in their prolonged trade dispute. The deal includes a mutual reduction of tariffs for 90 days, allowing both economies some maneuvering room to review their positions and possibly move toward a more lasting resolution.

Starting the following Wednesday after the announcement, Washington agreed to lower tariffs on Chinese products to 30%, while Beijing reduced its tariffs on U.S. goods to 10%. The truce also includes a suspension of other retaliatory measures, such as restrictions on rare earth exports by China.

This move seeks to curb the negative effects that the trade war has already inflicted, both on China’s manufacturing sector and on the U.S. economy, which experienced its first contraction in three years during the year’s first quarter.

Timeline of the Geneva Negotiation

The agreement was forged over two days of intense meetings in Switzerland, where both delegations—describing the environment as “warm and constructive”—discussed economic and trade matters of mutual interest. According to official sources, “major progress” was made and “important consensuses” were reached, although no long-term structural commitments have been detailed yet.

This tariff truce is seen as a window of opportunity to explore new terms for bilateral trade. While the tariffs have not been entirely removed, the temporary reduction provides space to reassess policies and prepare for a potentially broader agreement.

Key Statements from Both Governments

From Washington, U.S. officials expressed their desire for China to become more open to importing American products, a key demand in reducing the high bilateral trade deficit. “We would like to see a China more receptive to fair and reciprocal trade,” a spokesperson said.

Meanwhile, the Chinese government reiterated its willingness to keep dialogue open during the truce. Although Beijing has not conceded on sensitive points like currency controls, it has shown willingness to contain the escalation. President Donald Trump stated he might speak directly with his counterpart Xi Jinping in the coming days in an attempt to reinforce the negotiation climate.

Economic Consequences of the Trade War

Prior Effects on the Chinese and U.S. Economies

The tariff confrontation between China and the United States left significant marks on both economies even before the recent agreement. In China, exports to the U.S. plummeted during the month prior to the announcement, directly impacting its vast manufacturing sector. As a result, Chinese industrial production fell in April at the fastest rate in the past 16 months, raising concerns of a broader economic slowdown.

On the other hand, the United States experienced an economic contraction in the first quarter of the year, the first in three years. Many analysts attributed this to the cumulative effects of tariffs, which weighed down both foreign trade and domestic price levels.

Trade Imbalances and the Deficit

One of the main points of friction in the dispute has been the ongoing trade deficit the U.S. maintains with China, which Washington deems unsustainable. The Trump administration has repeatedly demanded that China open its market to American goods, accusing it of unfair practices and non-tariff barriers that contribute to the imbalance.

China, in turn, has been reluctant to change structural aspects of its economic policy, such as currency management or subsidies to strategic industries. Nevertheless, both sides acknowledge that the continuation of the conflict would bring even more damaging consequences.

Inflation and Pressure on Productive Sectors

The tariffs imposed during the trade war increased the costs of inputs and intermediate goods, resulting in inflationary pressures in both countries. Small and medium-sized enterprises, particularly in sectors such as agriculture and manufacturing, reported increased operational difficulties.

Consumers also felt the impact: the rise in the cost of imported goods led to a higher cost of living in certain segments of the U.S. market, while in China, uncertainty slowed domestic consumption and foreign direct investment.

Turning Point or Temporary Strategic Pause?

Analysts’ and Experts’ Perspectives

While the announcement of a tariff truce was welcomed by the markets, analysts and experts are taking a more cautious stance. Several economists have described the agreement as a temporary measure aimed at defusing immediate tensions, rather than a structural solution to the trade conflict. The absence of firm long-term commitments fuels skepticism about its durability.

From the U.S., international relations experts point out that the agreement actually reflects a tactical retreat by the Trump administration. Internal pressure from affected businesses, combined with signs of economic weakening, may have led the U.S. government to reconsider its stance.

Political Factors Behind Trump’s Pullback

Political context also plays a key role. President Donald Trump faces both domestic and international pressure to show results without compromising his tough image on China. At the same time, he has increasingly used trade as a political tool, not only against Beijing but also against traditional allies such as the European Union.

In this context, the truce may be seen as a strategic maneuver—a negotiated pause to buy time before making new decisions. The possibility of reinstating tariffs remains on the table, and Trump has warned he will do so if significant progress is not made by the end of the 90-day period.

Possible Scenarios After the 90 Days

The outlook beyond this grace period is uncertain. Potential scenarios include:

• Extension of the truce, if both parties show willingness to move forward.
• A broader agreement that redefines the terms of bilateral trade.
• Resumption of the trade war, if key differences persist.

Much will depend on the course of upcoming negotiations and how both economies respond to market signals. For now, the truce offers an opportunity, but also a warning: the conflict is far from being fully resolved.

Other Parallel U.S. Measures

Executive Order on Drug Prices

While trade negotiations with China were unfolding, President Donald Trump signed an executive order aimed at reducing the amount the U.S. government pays for pharmaceutical drugs. The measure introduces the concept of the “most favored nation,” requiring drug manufacturers to offer the U.S. the lowest price at which they sell a medication in any other developed country.

Trump claimed that, with this order, the price of certain medications could drop by up to 80%, although no specific drugs or companies were mentioned. The move is part of a broader strategy to pressure both pharmaceutical companies and foreign governments, whom Trump accuses of “extorting” U.S. firms into lowering prices.

Trade Tensions with Europe

The order’s implications go beyond domestic policy. In his remarks, Trump directly targeted the European Union, accusing its healthcare systems of operating at the expense of American taxpayers. “We are subsidizing a socialist healthcare system in Germany and other European countries,” he declared, suggesting the possibility of new trade sanctions against countries that don’t cooperate.

These statements increase the strain in already tense transatlantic trade relations, which have been marked by tariff disputes in sectors like steel, aluminum, and automotive. In this context, U.S. trade policy continues to follow a confrontational approach, using access to the American market as a geopolitical bargaining chip.

Washington’s Overall Strategy of Trade Pressure

The combination of the truce with China, threats toward Europe, and the offensive against pharmaceutical companies reveals a clear pattern: the Trump administration continues to use international trade as a tool of political leverage. The government favors bilateral deals, direct pressure, and unilateral measures to attempt to reshape what it sees as unfair trade conditions.

This strategy, however, leaves the global economy in a state of uncertainty, balancing between potential new opportunities and the fear of renewed conflict. For now, international trade moves forward under the logic of short-term tactics and the constant threat of sanctions—a game still far from finished.

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