In a major de-escalation of the trade war between the United States and China, a 90-day pause on tariffs has been agreed upon, leading to a sharp reduction in duties imposed by both sides.
The decision, hailed by analysts, marks a significant step towards calming tensions and boosting market sentiment.
US President Donald Trump announced Monday that the tariff reductions, which include a cut in American tariffs on Chinese goods from as high as 145% to 30%, and a reduction in China’s retaliatory tariffs from 125% to 10%, would take effect within the next 48 hours.
"Yesterday, we achieved a total reset with China," Trump said during a White House press briefing, adding that he expects to hold talks with Chinese President Xi Jinping "maybe at the end of the week."
Treasury Secretary Scott Bessent, speaking on Monday, described the talks as yielding “substantial progress.” He emphasized that the pause could be extended if there is a continued commitment to “good faith effort, engagement, and constructive dialogue.”
Significant shift
From an economic perspective, UBS analysts noted that the tariff reduction represents a significant shift in trade relations.
UBS highlighted that the reduction in tariff rates would lower the aggregate weighted average tariff on US imports from China from around 24% to about 15%, a sharp contrast to previous levels exceeding 100%. However, they cautioned that the tariff changes need to be formally implemented before drawing any firm conclusions on the long-term economic impact.
While markets have reacted positively, some analysts, such as Jeff Buchbinder, chief equity strategist for LPL Financial, stressed that this is a "de-escalation, not a trade deal."
Buchbinder warned that while the reduction in tariffs is a positive development, the fundamental tariff rates are still high, with China’s 30% overall tariff rate and the US’s 10% base tariff on Chinese imports remaining in place. "All the good news is priced in," he said, adding that the risk of tariffs rising again as the pause ends still looms.
Chris Zaccarelli, chief investment officer for Northlight Asset Management, noted the market's enthusiasm in response to the pause, saying that the Trump administration’s use of tariffs as a "negotiating tactic" reassures markets that "we aren’t going to go blindly back to the Smoot-Hawley days."
Zaccarelli believes that resolving the US-China trade issue could lead to all-time highs in the stock market before the year ends.
Steep hill to climb
However, not all experts are convinced that the deal will result in a lasting solution. “The Chinese are quite adept at stalling, so there's still a very steep hill to climb to get a real agreement,” Jamie Cox, managing partner for Harris Financial Group said.
Cox also noted that the pause offers US companies more time to adjust and plan for potential setbacks.
Gina Bolvin, president of Bolvin Wealth Management Group, shared a similar view, suggesting that the market’s current rally is a "textbook recovery" following the recent downturn. She also pointed out that while volatility might increase as the 90-day deadline approaches, the 10% tariff rate would have a much smaller impact on earnings than initially feared. “This is a big win for Trump, for stocks and for investors,” she added.