The US and China have issued a joint statement announcing a temporary reduction in tariffs, signalling a potential thaw in trade tensions. For a 90-day period, the US will lower tariffs on Chinese goods from 145% to 30%, while China will reduce its tariffs on US imports from 125% to 10%.
The news has been met with optimism by equity markets, with the US set for a strong start, as futures point to a 3.3% rise for the Nasdaq and a 2.5% gain for the S&P 500 when Wall Street opens later today, Russ Mould, investment director at AJ Bell, said. Asian and European markets have already responded positively, with Hong Kong climbing 3% and the Stoxx 50 index rising 1.4%.
“Lowering tariffs on Chinese goods from 145% to 30% is a big deal and one that significantly lessens the blow to the Asian economy,” he said.
“Trump has shown he is willing to reduce the severity of the Liberation Day tariffs and that has raised hopes for other countries to secure more favourable trade deals. All this points to the potential for a less severe hit to global trade and lower fears of recession. That in turn has put investors in risk-on mode.”
Investors have started to gradually move away from traditional safe havens, as gold (which gained around 40% in the past year) slipped to a one-week low and fell again in the wake of the positive outcome from the trade talks, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“The shared intention on both sides to reach a lasting agreement is evident – and that alone should help sustain the current positive momentum in markets,” she said.
“However, some of the optimism could wane if concrete plans to reduce tariffs don’t emerge. Today’s ‘deal’ just heralds the start of a series of negotiations.”
Doubts about how far the deal would actually go were widespread. Any lack of concrete progress in the next 90 days within the scope of the deal will likely just ramp up market tensions once again, according to Lindsay James, investment strategist at Quilter.
“We have seen tariffs suspended only to be reintroduced after subsequent negotiations weren’t seen to be progressing adequately and early trade deals have been announced with fanfare only to be later ripped up,” she said.
Jean-Louis Nakamura, head of conviction equities at Vontobel, has two predictions as to how the summer months might play out.
“In the next two months, we might attend a tug of war between pre-announcements of more sustainable and comprehensive agreements, closer to the initial starting situation, and hard data suggesting a rapidly deteriorating internal demand in the US and exports dynamic in China,” he said.
“If the latter come first, markets should experience another large bout of volatility.”
For Stuart Rumble, head of investment directing, Asia Pacific, at Fidelity International, these announcements won’t reverse the damage done so far.
“Even with these tariff cuts, much of the shift in global trade flows has already begun. Tariff differentials remain relevant and will continue to shape trade flows based on relative competitiveness, infrastructure capacity, and domestic policy responses,” he said.
“While encouraging, this development perhaps should be seen by investors as an easing of tensions within a broader, long-term shift in the US-China relationship towards greater self-sufficiency.”
For now, however, “sentiment may matter more than substance”, he concluded.