The dramatic tariff rollback between the US and China in May 2025 has jolted markets and injected short-term optimism, but the 90-day window is a high-stakes pause, not a permanent fix. Both sides are recalibrating strategies, with China moving swiftly to stabilize its economy and safeguard its long-term ambitions.
The Latest: What’s Really Changed in May 2025?
In a surprise move on May 12, 2025, the US and China agreed to slash tariffs for 90 days: US tariffs on Chinese goods dropped from a punishing 145% to 30%, while China cut its tariffs on US imports from 125% to 10% (1)
This truce, hammered out in Geneva, is designed to buy time for further negotiations and cool off a trade war that had reached fever pitch just weeks earlier (2)(3)
Visual: Tariff Rates Before and After the May 2025 Agreement
Figure 1: Tariff rates before and after the May 2025 agreement. Note the dramatic, but temporary, reduction.
Market Reactions: Relief Rally, but Cautious Optimism
- Stock Markets: US indices soared—Nasdaq up 4%, S&P 500 up 3.3%, and the Dow Jones leaping over 1000 points. Asian markets, including Hong Kong’s Hang Seng, echoed the optimism, though with a wary eye on the 90-day clock (4).
- Currency Markets: The US dollar strengthened against the yuan, reflecting renewed investor confidence and shifting expectations for US monetary policy (5).
- Economic Forecasts: Investment banks like UBS have revised China’s 2025 GDP growth forecast upward to 3.7–4%, up from 3.4%, citing the tariff relief and improved sentiment (4).
Visual: Market and Economic Impact of the Truce
Figure 2: (Top left) Tariff rates before/after; (Top right) Stock market gains; (Bottom left) Upward revision in China’s GDP forecast.
China’s Immediate Response: Stabilize, Diversify, and Negotiate
Short-Term Moves:
- Exporters Get Breathing Room: Lower tariffs mean Chinese manufacturers—especially in tech and consumer goods—can resume shipments to the US with less pain.
- Domestic Stability: Cheaper US imports help keep inflation in check and support Chinese consumer spending.
- Suspension of Additional Tariffs: China suspended its planned 34% tariff hike for 90 days, maintaining only a 10% baseline—signaling willingness to negotiate but keeping leverage for August 6,(8).
Strategic Adjustments Underway:
- Accelerate “Dual Circulation”: China is doubling down on boosting domestic demand and innovation to reduce reliance on US markets.
- Trade Diversification: Deepening ties with ASEAN, the EU, and Belt & Road partners to hedge against future US volatility.
- Tech Self-Sufficiency: Massive R&D in semiconductors, AI, and green tech to insulate the economy from future US pressure.
- Supply Chain Localization: Encouraging multinationals to “make in China, for China,” reducing exposure to external shocks.
The 90-Day Window: What’s at Stake?
China’s Focus high-level negotiations
Seek a permanent tariff reduction
Secure tech access, market entry
Monitor US political signals
Anticipate post-90-day US moves
Prepare for snapback tariffs
Expand global trade partnerships
Reduce US dependencyASEAN, EU, Global South
Accelerate domestic innovationHedge against future US tech restrictions
Chips, AI, green energy
Support affected industries
Maintain employment and social stability
Targeted fiscal/monetary support
Official Tone: “Cautious Optimism” from Both Sides
- US Trade Rep: “Committed to reducing trade barriers and fostering a more cooperative relationship” (2).
- Chinese Commerce Ministry: “A positive step towards stabilizing the bilateral trade relationship” (2).
- Treasury Secretary: Warns tariffs could snap back if no deal is reached by August (7).
Conclusion: A Pause, Not a Peace
The May 2025 tariff truce is a tactical timeout, not a strategic solution. China is using this window to stabilize its economy, accelerate innovation, and diversify trade—while preparing for the possibility that the trade war could reignite in August.
The US-China tariff rollback has brought short-term relief and market optimism, but the underlying rivalry remains. China is moving quickly to shore up its economy and long-term strategy, knowing that the next round of negotiations could be even tougher.
Citations:
2 Joint US-China statement, May 12, 2025
8 US Trade Representative press release
3 Chinese Ministry of Commerce announcement
4 Market and economic data, May 2025
5 Currency market analysis, May 2025
1 Recent tariff agreement details
6 China’s tariff suspension announcement
9 Policy analysis, May 2025
10 US de minimis tariff adjustment
7 US Treasury Secretary statement
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