Markets rally as U.S. and China agree to temporary tariff truce, but lingering uncertainty remains

Washington D.C. – The United States and China have agreed to a 90-day suspension of most of the tariffs they recently imposed on each other, marking a tentative step toward easing tensions in a trade war that has strained global commerce and pushed up prices for businesses and consumers alike.

The deal, finalized during high-level talks in Geneva over the weekend, rolls back tariffs that had escalated dramatically over the past several weeks. The U.S. will reduce its average tariff on Chinese imports from 145% to 30%, while China will lower its tariffs on American goods from 125% to 10%.

Markets responded sharply to the news. U.S. stocks soared Monday, with the S&P 500 up more than 3%, the Dow Jones Industrial Average gaining over 1,100 points, and the tech-heavy Nasdaq rising more than 4%. Investors saw the agreement as a possible turning point in a conflict that has injected uncertainty into the global economy. Stock markets in Europe and Asia also rallied, with Hong Kong’s Hang Seng Index closing up more than 3%.

Despite the relief, the pause does not reverse the broader shift toward protectionism. The new U.S. tariff rate—still nearly twice what it was at the start of the year—suggests that many imported goods will remain more expensive. Analysts noted that the U.S.’s effective tariff rate is now the highest it’s been since 1934, a level that could significantly impact consumer purchasing power and business costs. Inflation data due Tuesday is expected to shed more light on how tariffs are affecting prices.

The agreement follows a chaotic month in which the Trump administration repeatedly raised tariffs on Chinese goods, beginning with an 84% duty in early April and quickly increasing to 145%. The new 30% rate reflects the combination of two key tariffs: a 20% penalty introduced earlier in Trump’s second term over China’s handling of fentanyl exports and a 10% general import tariff that applies to nearly all foreign products.

Negotiators from both countries framed the 90-day window as a chance to return to more productive discussions. U.S. officials said the previous approach to trade talks had failed to produce results and argued that the sharp escalation in tariffs had forced Beijing back to the negotiating table. Talks are expected to resume in the coming weeks, with broader issues—including drug trafficking and industrial policy—likely to be addressed.

China’s government characterized the agreement as a positive development and signaled a willingness to continue working toward a more stable trade relationship. Still, Beijing also made clear that it expects the U.S. to reverse what it sees as unfair and unilateral trade measures.

While large corporations may have more capacity to absorb the uncertainty, small and mid-sized businesses on both sides of the Pacific stand to benefit most from the tariff pause. Many Chinese exporters have already suffered significant losses in U.S. orders, while American importers have been squeezed by higher costs.

Though the temporary truce exceeded many expectations, significant challenges remain. With just 90 days to make progress and no long-term deal yet in place, both governments face a difficult road ahead.