Done deal

Ladies and gentlemen, we’ve got another tariff pause.

Starting May 14, the US and China will roll back their tit-for-tat tariffs for 90 days, the two superpowers announced in a joint statement early this morning.

Investors were pleasantly surprised to hear that both sides have agreed to temporarily reduce tariffs on one another by 115%: Chinese tariffs on US goods will drop from 125% to 10%, while the US will keep its baseline 10% levy and additional 20% fentanyl-related fee on Chinese goods, lowering its total tariff rate from 145% to 30%.

‘The Geneva mechanism’

The conference between the US and China in Geneva this weekend was widely expected to be a small step in the right direction at best, not a quantum leap. Reports abound that no communication between the world’s two largest economies has been happening at any level up until this past weekend.

But apparently discussions between Treasury Secretary Scott Bessent’s team and its Chinese counterparts went shockingly well. Perhaps the most important part of this morning’s joint statement was that the two sides agreed to “establish a mechanism to continue discussions about economic and trade relations.” In other words, relations between the US and China are beginning to thaw for the first time since Liberation Day.

Investors, understandably, loved today’s news. Tariff turmoil has rocked the market and the economy alike—the S&P 500 closed last week down over 8% since its February high, while US GDP contracted last quarter for the first time since 2022.

Reactions on Wall Street ranged from hesitantly positive to outright jubilant.

• “This morning is a huge win for the bulls and a best case scenario post this weekend in our view,” wrote Wedbush Securities analyst Dan Ives. “With US/China clearly on an accelerated path for a broader deal we believe new highs for the market and tech stocks are now on the table in 2025 as investors will likely focus on the next steps in these trade discussions which will happen over the coming months.”
• “Today’s announcement even exceeds our constructive expectations,” Deutsche Bank analysts wrote. “Although it is hard to tell how this will develop after the 90-day period, the implications for markets are clearly supportive ... Stay bullish and consider stepping back into China tariff-exposed sectors (ex Autos, Health Care and Chips).”
• “The 90-day period may not be sufficient for the two sides to reach a detailed agreement, but it keeps the pressure on the negotiation process,” wrote Chief Market Strategist for Asia Pacific at JPMorgan Tai Hui. He continued: “Overall, we expect the market to get back on to a risk-on sentiment in the near term.”

Cooler heads

Sentiment is certainly soaring today, but remember: Trade deals are a marathon, not a sprint.

It’s tempting to bet big on any and all good news, and the White House will certainly continue to encourage that behavior. Expect to hear a lot about how well President Trump’s meetings go in Saudi Arabia, Qatar, and the United Arab Emirates in the coming days—three very Trump-friendly countries that are likely to hand the president more wins (and in Qatar's case, planes).

But the first tariff pause that President Trump announced back on April 9 ends at midnight July 8—and there are still 50 countries whose tariffs remain above the 10% baseline that the US has yet to make deals with.

That should make for a very busy two months for US negotiators, though investors might not mind: China was the big prize, and investors' sudden optimism following today's news could sustain markets for a while yet.—MR