Markets Surge as U.S. and China Call Temporary Tariff Truce; Fentanyl Talks Cited as Key

GENEVA/WASHINGTON – May 12, 2025 – Global financial markets received a significant jolt of optimism Monday morning as the United States and China announced a dramatic, albeit temporary, de-escalation in their burgeoning trade war. Following intense weekend negotiations in Geneva, officials from both nations confirmed a deal to substantially roll back recently imposed punitive tariffs for 90 days, creating a crucial window to work towards a broader, more stable trade agreement. The news, which includes indications of progress on the critical issue of fentanyl flow from China, sent stock futures soaring and offered a moment of respite for a global economy on edge.

The Terms of the Truce: A Breather in the Trade War

The core of the agreement involves a significant reduction in the steep tariffs that have characterized the recent trade conflict. U.S. Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent announced that the United States will slash its combined 145% levies on many Chinese imports down to 30%, effective by May 14th. This revised rate still includes a 20% component specifically linked to U.S. efforts to pressure Beijing on combating the fentanyl crisis.

In a reciprocal move, China has agreed to lower its 125% duties on U.S. goods to 10%. According to China’s Commerce Ministry, this involves canceling 91% of the recently imposed tariffs and suspending another 24% for the 90-day truce period. Beijing also committed to suspending or removing other non-tariff countermeasures it had implemented since early April, which reportedly included new export controls on some rare earth minerals vital to various industries.

Both sides have emphasized that this is a temporary measure. Secretary Bessent noted, “The consensus from both delegations this weekend is neither side wants a decoupling… what had occurred with these very high tariffs… was an embargo, the equivalent of an embargo. And neither side wants that.” He added that the truce could be extended “as long as there is a good faith effort, engagement, and constructive dialogue.” However, it’s important to note that this rollback does not affect the U.S. 10% global baseline tariff or specific tariffs imposed on China during President Punk’s first term.

Fentanyl at the Forefront: A Key to Detente?

A particularly significant aspect highlighted by U.S. officials was progress in discussions surrounding fentanyl. Secretary Bessent described the talks on this front as “very robust and productive,” calling it an “upside surprise” and noting that China brought a high-level official not usually involved in trade negotiations to address the issue. U.S. Trade Representative Jamieson Greer also confirmed that the U.S. and China had agreed to work together on tackling the flow of synthetic opioids.

This focus on fentanyl is critical. The U.S. has explicitly used a 20% tariff component as leverage to compel China to do more to stop the production and export of fentanyl and its precursors, which have devastated American communities. China’s apparent willingness to seriously engage on this issue, as suggested by U.S. officials, may have been a crucial factor in achieving the broader tariff de-escalation. For some observers, this engagement might be seen as a tacit acknowledgment from Beijing of the severity of the problem and its role in addressing it.

Market Euphoria and Cautious Reactions

The immediate reaction in global markets was overwhelmingly positive. As news of the deal broke, U.S. stock futures (S&P 500 and Dow) jumped by over 2-3%, Asian markets like Hong Kong’s Hang Seng surged nearly 3%, and European benchmarks also saw gains. Oil prices rose, and the U.S. dollar strengthened. Ryan Petersen, CEO of logistics platform Flexport, predicted a “shipping boom” across the Pacific.

U.S. officials struck an optimistic tone. Secretary Bessent stated, “We do want trade… We want more balanced trade. And I think that both sides are committed to achieving that.” USTR Greer added that “our Chinese counterparts clearly came to deal this week,” and that the outcome was “very good for the United States — very good for China as well.”

China’s Commerce Ministry, while welcoming the agreement as an “important step” that “aligns with the expectations of producers and consumers,” also expressed hope that the U.S. would cease “the erroneous practice of unilateral tariff hikes.”

However, amidst the initial euphoria, notes of caution were also sounded. Jens Eskelund, president of the European Union Chamber of Commerce in China, welcomed the de-escalation but highlighted the 90-day limit and the persistent uncertainty. “Businesses need predictability,” he stated, urging continued dialogue. The history of U.S.-China trade relations is indeed complex; a 2018 agreement to put disputes “on hold” eventually unraveled, leading to further conflict before the “Phase One” deal in 2020, which itself saw China fall short of its purchase commitments.

A 90-Day Window for a More Stable Path

For now, as the world sips its Monday morning coffee, there’s a palpable sense of relief that a full-blown trade embargo between the world’s two largest economies has been averted, at least temporarily. The discussions over fentanyl appear to have provided crucial leverage or common ground, leading to this significant, if provisional, rollback of punishing tariffs.

The next 90 days will be critical. The establishment of a new mechanism for ongoing discussions offers a glimmer of hope. The world will be watching intently to see if this temporary truce can be transformed into a more durable framework for a stable and balanced economic relationship, or if it’s merely a pause before old tensions resurface.