Tariff Truce Ignites Global Market Rally as U.S. and China Signal Shift to Cooperation

In a dramatic reversal of years of escalating trade conflict, the United States and China announced a 90-day tariff truce that has sent ripples through global markets. The deal, reached after high-level talks in Geneva, temporarily suspends punitive tariffs and sets the stage for further negotiations between the world’s two largest economies. Financial markets responded with enthusiasm, led by surging futures contracts and a jump in U.S. Treasury yields, as investors priced in reduced geopolitical risk and renewed growth momentum.

Under the agreement, the U.S will suspend 24.0% pts of its existing tariffs on Chinese goods for an initial 90-day period. A base 10 percent tariff will remain in place, and a separate 20.0% tariff tied to fentanyl-related enforcement under the International Emergency Economic Powers Act will continue. China, for its part, will remove all retaliatory tariffs and halt non-tariff measures that had targeted U.S. companies since April. Both countries have agreed to resume structured trade negotiations over the next three months.

This move follows months of mounting pressure on both sides to find common ground amid slowing global trade, rising inflation uncertainty, and weakening investor confidence. The deal’s structure reflects a deliberate balance of de-escalation with retained leverage. By keeping a base tariff and a special penalty tariff in place, the U.S. administration preserves its ability to respond quickly if talks break down. Meanwhile, China’s broader concessions on non-tariff barriers and its full removal of retaliatory tariffs signal a pragmatic pivot toward stabilization. While the statutory tariff rate dropped from as high as 145% to 55%, research from Pictet Asset Management shows that the import-weighted static effective rate fell from 27% to 15%, and the dynamic effective rate remained flat at 14%. This means the Geneva agreement may not change trade behavior much in the short term, since companies have already adapted to high tariff environments. Inflation effects stay constant, but U.S. GDP drag improves slightly, falling from 1.7% to 1.2%, while China benefits even more with a 1.3pt reduction in negative growth impact.

Tariff Table: Before and After the Geneva Deal

Component	Before Geneva Deal	After Geneva Deal (90-Day Truce)	If Talks Fail (Reversion)
Trump-Era Section 301 Tariff	25%	25%	25%
Unified Base Tariff (2025)	10%	10%	10%
Fentanyl-Related Tariff (IEEPA)	20%	20%	20%
Reciprocal Tariff (New, April)	24%	Suspended	Restored
Headline Statutory Total	~79%	~55%	~79%
Max Theoretical Rate	Up to 145%*	55%	Up to 79% again
Static Effective Tariff (U.S.)	27%	15%	27%
Dynamic Effective Tariff (U.S.)	14%	14%	14%

Calculation of tariff change and expected import response:

Using the formula:

This suggests U.S. imports of Chinese goods could rise about 20-30% over the truce period if the tariff drop fully passes through to prices. This effect would be strongest in elastic categories such as electronics, apparel, and machinery.

Markets were quick to react. NQ-100 futs rose more than four percent while S&P 500 futs climbed over three percent in after-hours trading. Shares of multinationals and tech giants such as Amazon, Apple, and Tesla posted sharp gains in premarket activity. U.S. 10 yr treasury yields also moved higher, rising nearly six bps to 4.44%, as investors rotated out of safe-haven assets in favor of risk exposure. The cash S&P 500 index, which closed slightly lower before the news broke, is expected to catch up with futures in the next trading session.

Currency markets also responded with optimism. Analysts lowered their forecasts for the USD/CNY exchange rate, with expectations that the Chinese yuan will appreciate toward 7.00 over the next year. The shift is driven by expectations of improved trade flows and a broader dollar depreciation trend tied to declining geopolitical risk.

From a policy standpoint, the White House emphasized that the tariff strategy is rooted in addressing the national trade deficit, which stands at $1.2 trillion. U.S. officials noted that the original tariff regime was declared under national emergency powers and that the current reprieve does not reflect a full normalization but rather a structured negotiation pause. This framework gives Washington leverage to reimpose tariffs if China does not comply with further demands or if talks stall.

Trade law experts have noted that China made more tangible concessions in this round. By removing both tariff and non-tariff measures, Beijing has moved more aggressively to reset the relationship. The United States, on the other hand, retained baseline tariffs and added conditionality through the fentanyl provision. This asymmetry underscores the transactional nature of current U.S. trade strategy, which emphasizes pressure and flexibility over comprehensive reform.

Still, the economic implications are clear. With effective tariffs falling from nearly 27.0% to 15.0%, the cost of Chinese imports will drop sharply. Given the price elasticity of U.S. demand for Chinese goods, analysts expect a strong rebound in import volumes, particularly in consumer electronics, apparel, and industrial inputs.

The 90-day window now becomes the focal point for markets and policymakers alike. If negotiations progress, a more permanent de-escalation may follow. If talks collapse, tariff rates could snap back to nearly 55.0%. For now, the truce provides meaningful breathing room for global supply chains and a welcome reprieve for investors eager for geopolitical clarity.

In short, the Geneva deal represents a temporary but consequential pivot from confrontation to cooperation. It offers a glimpse of economic pragmatism in a world increasingly shaped by political brinkmanship. Whether this truce evolves into a true trade reset will depend on the months ahead.