US-China Deal: Trade Reset or Temporary Reprieve? Pause Fuels Market Volatility

US and China Etch a 90-Day Trade Deal – What’s Next?

The next 90 days may define the decade for US-China trade. The US and China reached a crucial agreement on Sunday, May 11, temporarily halting the trade war.

On Monday, May 12, details emerged revealing tariff cuts. China cut tariffs on US goods from 125% to 10%, while the US lowered tariffs on Chinese goods from 145% to 30%. However, the reductions are only in effect for 90 days, raising doubts about the prospects for a longer-term, zero-tariff deal.

US Administration Keeps Pressure on Beijing

Rhetoric following the agreement underscored the US administration’s need to get the upper hand in future negotiations. US Treasury Secretary Scott Bessent warned that tariffs could return to April 2 levels, adding it was highly unlikely for tariffs on China to drop below 10%. He characterized current tariffs as the floor and the previous levies as the ceiling.

President Trump lauded the trade agreement, describing the deal as a ‘total trade reset,’ while warning that tariffs would rise again if negotiations failed.

Treasury Secretary Bessent echoed President Trump’s stance on China, a potential focal point in upcoming trade talks, reportedly stating:

“We’d like to see China open to more US goods. There’s a chance, if we can open up trade to China, we could have more fair trade towards the US and rebalance together.”

Market commentator Cyrus Janssen challenged the notion that China limits market access, saying:

The Chinese buy Teslas, but Americans can’t buy BYD; Chinese buy iPhones, but Americans can’t buy Huawei; the Chinese buy Starbucks, but Americans can’t buy Luckin.”

He also noted that China has more KFC restaurants than the US, concluding:

“China has been open to American businesses for over 40 years. In fact every company on the Dow 30 has factories or supply chains traced back to China. When will the US market open up to China?”

Where Do Tariffs Stand After the Deal?

Despite tariff reductions, overall levels remain historically elevated. Robin Brooks, Senior Fellow at the Brookings Institution, explained that tariffs have stacked up over the years:

“We came out of 2018 with a tariff of 18%. Two rounds of 10% fentanyl in Feb. ’25 and Mar. ’25 took that to 38%. We went to 150% in Apr. ’25 and – as of today – are back down to 48% (i.e. 18% from 2018 + 2 fentanyl rounds + 10% universal tariff).”

Brooks also emphasized that the latest tariffs are on top of existing tariffs from 2018, adding:

“It’s all very confusing, but 2025 tariffs stack on top of 2018 tariffs. So – I think – it’s basically 18 + 10 + 10 + 10…”

Trade Agreement Whipsaws Asian Markets

Investors initially welcomed the agreement. On May 12, Hong Kong and mainland China stocks rallied, with the CSI 300 climbing 1.16%. However, concerns about the 90-day window, elevated tariffs on Chinese goods, and tariff threats tested risk sentiment on Tuesday, May 13.

The CSI 300 rose 0.03% on May 13 while the Hang Seng Index fell 1.67%, paring Monday’s 2.98% rally.

US markets reacted more positively. The Nasdaq Composite Index jumped 4.35% on May 12, settling at 18,708, its highest close since February. Monday’s rally left the Nasdaq down 3.12% year-to-date, while the CSI 300 was down 1.1%. Despite the May 13 sell-off, the Hang Seng Index has gained 15.44% YTD, outmuscling the US and China markets.

Outlook

Tariff policy remains crucial for market sentiment. An escalation could reignite global recession fears and trigger a flight to safety. Meanwhile, economists should remain focused on Beijing after April’s inflation report showed persistent deflationary pressures. Falling consumer and producer prices signaled weak demand despite stimulus efforts.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero remarked:

“Nobody can deny, China is in deflation and this is a big thing. This is a big thing because it means that you can’t just get your act together to have decent margins independently of the tariffs because we saw exports. Exports are growing at 8%, so its not about exports, its about the over-competition.”

Commenting on the effect of tariffs on China’s economy, Herrero concluded:

“China will need to stimulate the economy big time this year if they want to avoid a massive deceleration no matter the talks today (trade talks).”

Stay with us for continued updates on China’s economic outlook, trade developments, and global market reactions.