US share markets are up sharply this morning amid optimism over a trade deal between the US and China, the world’s two biggest economies. The two countries have decided to slash the reciprocal tariffs after a weekend meeting in Geneva.
As part of the agreement, the “reciprocal tariffs” that both countries imposed on each other last month would be slashed to 10%. However, the fentanyl-related tariff of 20% that President Donald Trump announced well ahead of the reciprocal tariffs on April 2 would still remain in place.
US and China slash tariffs
This would mean that Chinese imports into the US will attract a tariff of 30%. While that might seem high, it is significantly below the 145% tariff that Chinese products were subject to prior to the agreement.
The current tariff regime would be in place for 90 days, during which time the two sides would negotiate a wider trade deal. “Both countries represented their national interest very well,” said US Treasury Secretary Scott Bessent. He added, “We both have an interest in balanced trade, the U.S. will continue moving towards that.”
US share markets rally
Meanwhile, US share markets are rallying after the tariff reprieve came in much better than expected. Notably, the Trump administration has said that 10% would be the minimum base tariff on all countries, which would be applicable even after a trade deal is negotiated. Last week, the US signed a trade deal with the UK, which was the first such agreement since the announcement of reciprocal tariffs. Imports from the UK would now attract a flat 10% tariff as part of the agreement.
“This is better than I expected. I thought tariffs would be cut to somewhere around 50%,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, while commenting on the tariff reprieve. He added, “Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term.”
Tesla, Amazon, and Apple are some of the biggest gainers today as US share markets limp back towards pre-tariff levels.
Tariff reprieve was better-than-expected
Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, also echoed similar views and said, “The magnitude of this tariff reduction is larger than expected.”
He, however, cautioned, “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.” Hui added, “We are still waiting for further details on other terms of this agreement, for example, whether China would relax on rare earth export restrictions.”
Meanwhile, he acknowledged that US share markets are rallying amid the increase in “risk on” sentiment. Notably, US shares had crashed amid the escalating trade war, and the S&P 500 Index fell into bear market territory amid the tit-for-tat tariffs.
On April 2, Trump slapped a 34% tariff on Chinese imports as he imposed reciprocal tariffs on over 180 countries. However, the two countries gradually raised the tariffs, which spooked markets. While Trump provided tariff relief on tech goods like smartphones and PCs, many other products were subject to the 145% tariff.
Now, with the US slashing the tariff to a bare minimum of 10% (without the fentanyl-related duties), investors are taking a sigh of relief, sending US share markets sharply higher.
Analysts see US share markets surging higher
Meanwhile, analysts see the rally in US share markets continuing after the tariff reprieve. In their note, Deutsche Bank analysts said, “Today’s announcement even exceeds our constructive expectations.” They added, “In our view, this announcement is not only better than we expected but also better than the market would have expected back in March.
According to Deutsche Bank, “Although it is hard to tell how this will develop after the 90-day period, the implications for markets are clearly supportive … Stay bullish and consider stepping back into China tariff-exposed sectors (ex Autos, Health Care and Chips).”
Dan Ives says the trade deal is a “huge win.”
Wedbush analyst Dan Ives described the trade deal as a “big win” for share markets. “We would expect both these tariff numbers to move down markedly over the coming months as deal talks progress,” said Ives in a note.
He added, “The baseline view heading into the weekend was some de-escalation of US/China tariffs and the agreement for more talks … instead in a dream scenario this morning [officials] came out of these talks with massive cuts to reciprocal tariffs.”
Recession odds rose due to the tariffs
Notably, the odds of a US recession rose amid the tariff uncertainty. Multiple economists warned that the tariffs would raise the cost for US consumers and push the world’s largest economy into a recession. The crash in US share markets did not help and only dampened consumer sentiments.
Fed chair Jerome Powell has also been cautioning about the repercussions of Trump’s tariffs. Speaking at a business journalism conference in Arlington, Va. Last month, Powell said, “Higher tariffs will be working their way through our economy and are likely to raise inflation in coming quarters.”
Notably, Powell has held rates steady amid the tariff uncertainty, which earned him the wrath of Trump, who nicknamed him “too late.” Now, with the Trump administration moving forward on trade deals, analysts are getting optimistic about the outlook for US shares, which nosedived in the first half of April amid escalating trade tensions.
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Mohit Oberoi
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