Market News

How Bessent explained the 115-point reduction in U.S.-China tariffs that has triggered market euphoria

After months of a simmering tariff feud largely focused on the U.S. and China, financial markets may finally have what they want — at least for now.

Top officials may have bought some market patience — a strong rally was setting up for Wall Street on Monday — after delegates from the Trump administration and China 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.

He stressed that neither side wants a decoupling in their relationship.

In a joint statement announcing the moves, the U.S. and China 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.”

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. He told Bloomberg Radio later in the morning that he considered the new levels on China “a floor.”

“They are now with everyone else who did not retaliate,” he said, adding that it would be “implausible” for those China tariffs to drop below 10%.

Bessent said that throughout the process, which has roiled financial markets and the global economy, the U.S. has “had a plan” and a “process in place.” He added: “And now with the Chinese, we have a mechanism for continued talks.”

“I reject the notion that business as usual would have worked,” he said.

He said that the U.S. wants to continue with a “strategic rebalancing” of areas exposed as supply-chain weaknesses during COVID-19, across industries such as medicines, semiconductors and steel. He said the U.S. has “identified five or six strategic industries and supply chain vulnerabilities,” with a goal to get more U.S. independence or a reliable supply chain from allies.

As for moving forward with China, he said the U.S. wants “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.”

One apparent positive for the U.S. delegation was the fact that both countries have now agreed to work on fentanyl. Bessent called that an “upside surprise,” noting that 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 were positive on that front.

Dow futures YM00 +0.33% were up by over 1,000 points headed into Wall Street’s open on Monday, adding to gains after Sunday’s comments from Bessent that substantial progress had been made. Safe-haven investment gold GC00 -1.39% slumped $115 to $3,229 an ounce, but oil prices CL00 +0.50%, strained by growth concerns this year, jumped 4% to $63.51/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,” Ahmad Assiri, research strategist at Pepperstone, said 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.