The United States and China agreed on Monday to step back from the brink in their massive tariff war that roiled financial markets and intensified trade tensions.

The two sides agreed to slash import tariffs on each other's goods for 90 days from Wednesday.

The respite follows high-stakes negotiations in Geneva last weekend over US President Donald Trump's so-called reciprocal tariffs, which are meant to ease the US trade imbalance, but caused Beijing to retaliate with similar measures.

Until Monday, China was the sole country that Trump declined to grant a tariff pause.

What do we know up to this point?

US Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent announced the tariff cuts at a news conference in Geneva on Monday morning.

Greer said the US would cut its tariffs on Chinese goods from as high as 145% to 30%.

In return, China is to reduce its tariffs on US imports from 125% to 10%.

The lower tariffs will remain in place for 90 days to cool tensions and allow more negotiations to take place.

The two US officials said the talks had yielded "substantial progress" in resolving their trade dispute.

A statement from the White House said China and the US were moving forward "in the spirit of mutual opening, continued communication, cooperation, and mutual respect."

China's Commerce Ministry said in a statement later that the tariff reduction was "in line with the expectations of producers and consumers in both countries, and the interest of the two countries and the common interest of the world."

Beijing called on the US to "take these talks as a foundation to keep working with China and completely correct the wrong practice of unilateral tariff rises..." 

How have financial markets reacted?

The US-China announcement triggered a rally in global financial markets. Asian stock indices and US futures surged in response.

Hong Kong’s Hang Seng index soared 3%, while Shanghai's composite index gained nearly 1%. In the US, S&P 500 futures climbed almost 3% early Monday, and the tech-heavy Nasdaq jumped nearly 4%.

The US dollar strengthened to a one-month high against the euro and yen.

Investors expressed optimism that the deal would encourage trade agreements with other US partners facing tariffs ranging from 10% to 49%.

Bessent revealed ongoing talks with the US's 18 key trading partners, noting that some have proposed "very promising deals."

Markets have been recovering from the initial chaos caused by Trump’s broad reciprocal tariffs, which sparked sharp sell-offs in stocks and the US dollar.

The steep import taxes disrupted trade between the world’s two largest economies, raising costs for importers and fueling fears of renewed inflation.

What do investors think of the pause?

Tai Hui, APAC chief market strategist at JP Morgan Asset Management, said the tariff reduction was "larger than expected," in a sign that both sides believe negotiation is a better option to resolve the trade war.

"The 90-day period may not be sufficient for the two sides to reach a detailed agreement, but it keeps the pressure on the negotiation process," Tai said in a note to clients.

Deutsche Bank went further, writing in a research note that the cuts were "better than the market would have expected back in March," when Trump threatened to raise tariffs on the rest of the world.

Dan Ives, managing director and global head of technology research at Wedbush Securities, said the tariff cuts would "likely take a recession off the table for now." Ives forecast new highs for US stocks, particularly tech names.

Stuart Rumble, Head of Investment Directing, Asia Pacific, at Fidelity International, said the reprieve "should help restore some confidence" in financial markets, while noting the tariff cuts are time-limited.

What happens now?

The 90-day tariff cuts offer a critical window for negotiators under pressure to forge a lasting resolution to the trade war.

The White House announced a mechanism for ongoing talks, led by China’s Vice Premier He Lifeng and US representatives Bessent and Greer. Discussions would take place in the US, China, or a neutral third country.

Bessent highlighted five or six key industries, including pharmaceuticals and steel, where the US is seeking a "strategic rebalancing" to reduce reliance on China. "Neither side wants decoupling," he emphasized. "We want trade — more balanced trade."

As a result of the reduced tariffs, exporters in both nations can now plan with greater confidence, securing orders at lower costs.

The tariffs had slashed container bookings from China to the US by up to 60%, raising fears of empty store shelves by summer. Immediate shortages of goods like furniture, apparel, and toys are now less likely.

The uncertainty from Trump's tariffs risked a US and global recession, inflation spikes and bankruptcies.

While the pause eases these threats, China’s neighbors, including Vietnam, Cambodia, and Indonesia, are eager to strike trade deals with Washington, potentially undermining future Chinese exports.

Beijing has cautioned Asian nations against actions that conflict with its interests, which could complicate further agreements.

Edited by: Uwe Hessler