MW How Bessent explained the 115-point reduction in U.S.-China tariffs that has triggered market euphoria
By Barbara Kollmeyer
The U.S. and China will each lower tariffs by 115 percentage points
After months of a simmering tariff feud largely focused on the U.S. and China, financial markets may finally have they want, at least for now.
Officials may have bought some market patience after delegates from the Trump administration and China on Monday announced plans to cool simmering tensions by simultaneously slashing each other's tariffs.
"We have reached an agreement on a 90-day pause and substantially moved down the tariff levels," Treasury Secretary Scott Bessent said at a press conference in Geneva on Monday, following a weekend of talks with Chinese officials. And the gist, according to Bessent, is that neither side wants a decoupling in their relationship.
In a joint statement announcing the moves, the U.S. and China sides each said they recognized the "importance of their bilateral economic and trade relationship to both countries and the global economy" and "the importance of a sustainable, long-term, and mutually beneficial economic and trade relationship."
Specifically, the U.S. is cutting tariffs on China to 30% from 145% while China is cutting tariffs on U.S. goods to 10% from 125%, with each of those moves expected to last 90 days. Bessent said that throughout the process the U.S. has "had a plan."
"So there was very good personal interaction, both countries represented their national interests very well. We concluded that we have shared interests, and we both have an interest in balanced trade," he said, adding that there was a "process in place. And now with the Chinese we have a mechanism for continued talks," said Bessent.
"I reject the notion that business as usual would have worked," he added.
Bessent said the U.S. also plans to continue a "strategic rebalancing" of areas exposed as supply-chain weaknesses during COVID-19, whether medicines or semiconductors or steel. He said the U.S. has "identified five or six strategic industries and supply chain vulnerabilities and will continue moving toward U.S. independence or a reliable supplies from allies on those."
As for moving forward with China, he said the U.S. does want trade, and "more balanced trade and I think that both sides are committed to achieving that. We would like to see China open to more U.S. goods," he said, placing much of the blame for what he called an out-of-balance trade deficit on the Biden administration.
After the next 90 days expire, he said "as long as good faith efforts, engagement and constructive dialogue then we will keep moving forward."
One apparent positive for the U.S. delegation was the fact that both countries have now agreed to work on fentanyl, which Bessent called an "upside surprise," and pointed out China brought along a high-level official not usually involved in trade talks. "For the first time, the Chinese understood the magnitude of what was happening in the U.S.," he said.
U.S. Trade Representative Jamieson Greer added that the fentanyl-related tariffs on China are still in place but said talks on there have been positive.
Dow futures (YM00) were up by over 800 points headed into Wall Street's open on Monday, adding to gains after Sunday's comments from Bessent that substantial progress had been made. Haven investment gold (GC00) slumped $115 to $3,229 an ounce, but oil prices (CL00), strained by growth concerns this year, jumped 2.8% to $62.41/barrel.
"Under the surface, this move seems more like an effort to buy time. It may help pave the way for more serious talks over the coming three months. Markets read this as a sign that progress is possible. Not guaranteed, and not permanent, but at least it's a step forward," said Ahmad Assiri, research strategist at Pepperstone, in a note.
"The bigger questions about the global economy remain, however. Stock markets have enjoyed a huge rebound over the past month, and are back to pricing in a lot of good news. Should the data start to worsen in coming months, then markets could easily take another tumble. For the moment, however, investors are content to ride the wave of euphoria from today's news," added Chris Beauchamp, chief market analyst at IG, in a note.
-Barbara Kollmeyer
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(END) Dow Jones Newswires
May 12, 2025 04:42 ET (08:42 GMT)
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