The US and China have agreed to a mutual reduction in tariffs for a period of 90 days during which time negotiations will take place on what US President Trump said were the “structural issues” in relation to the world’s number one and two economies.

Markets have risen sharply on the news of the tariff pullback, which had seen a rate of 145 percent imposed on Chinese goods. In effect, this was an embargo. Trump, however, warned that if no agreement was reached over the next 90 days, tariffs could be reimposed, though not at the previous level.

He also made it clear that tariff hikes on individual commodities such as steel and aluminum, and cars would remain, and that tariffs on pharmaceutical products would soon be announced.

Under the agreement, hammered out in many hours of talks over the weekend in Geneva, between the US team headed by Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, and the Chinese team led by Vice Premier He Lifeng, the US tariff on Chinese goods will come down to 30 percent.

This comprises the 10 percent US tariff imposed on all imports, plus the 20 percent tariff supposedly imposed to demand that China take action on the flow of the drug fentanyl to the US. Together with tariffs imposed earlier, the effective rate is now estimated to be 40 percent.

China has said it will reduce its tariff on US imports from 125 percent to 10 percent. It has also agreed to some easing of restrictions on the export of critical minerals to the US, which were imposed in response to the Trump tariff hikes.

Both sides issued statements hailing the agreement.

Bessent, who had earlier characterized the 145 percent tariff as an “embargo” and “unsustainable,” said: “We want more balanced trade, and I think both sides are committed to achieving that. Neither side wants a decoupling.”

The statement from the Chinese Ministry of Commerce said: “We believe that continued consultations will help resolve issues of concern to both sides in the economic and trade field.”

There were claims of victory on both sides. Trump said he had engineered a “total reset” with China. There was no official comment from China, but the former editor of the Global Times, Hu Xijin, posted on social media that the deal was “a great victory for China.”

The international assessment by economists is that the US was forced to pull back from its frontal assault.

Alicia Garcia-Herrero, chief Asia economist at the French investment bank Natixis, told the Financial Times (FT): “The US blinked first. It thought it could raise tariffs almost infinitely without being hurt, but that hasn’t proved to be right.”

An editorial by the FT on what it called an “uneasy détente” said there was no guarantee that the three-month truce would lead to an “enduring ceasefire” and that there was no indication that the talks would do anything to bring down the US trade deficit with China.

There was, it said, an “emerging view” that Trump’s tariff climbdown would bring US rates down to the levels announced in his election campaign—10 to 20 percent for most countries, and 60 percent for China.

“Given all the twists and turns over the past few weeks, markets might be forgiven for thinking that’s a good outcome. But prior to the president’s inauguration, that was most analysts’ worst-case scenario.”

The FT reported that during the IMF meeting in April, a secret meeting was held in the basement of its headquarters in Washington between Bessent and Chinese Finance Minister Lan Fo’an to discuss the breakdown in economic relations.

The response to the massive tariff hikes announced on April 2, dubbed “Liberation Day” by Trump, led to a major selloff on Wall Street. Even more significantly, there was a selloff in the US Treasury bond market and a fall in the value of the US dollar, as well as a rise in the price of gold to a record high.

These developments sounded the alarm bells in US financial circles because they were in marked contrast to what usually takes place under so-called normal conditions.

Instead of a move into US assets as finance capital seeks a “safe haven,” there was instead a move out of the dollar. “Sell America” became the dominant theme in financial markets, raising questions about its long-term viability as the global reserve currency.

Despite the surge on Wall Street in response to the agreement—the S&P 500 was up 3.3 percent yesterday—none of those issues have gone away.

An editorial in the Wall Street Journal, which represents sections of the US ruling class hostile to tariffs, said: “Rarely has an economic policy been repudiated as soundly, and as quickly as President Trump’s Liberation Day tariffs—and by Mr. Trump’s own hand.”

It pointed out that after weeks of market turmoil, the economy was left with higher costs and greater uncertainty. While there were negotiations “allegedly underway with dozens of countries,” so far there’s “scant signs of the substantial trade deals that Mr. Trump promises.”

The editorial, however, did not signify any lessening of the incipient war against China. Rather it advocated that other, military methods, be more intensely developed to preserve American supremacy.

It noted that Trump’s approach had hurt his chances of rallying a united front of countries against Beijing. By targeting allies with tariffs, he “has eroded trust in America’s economic and political reliability.”

Moreover, it continued, concrete experience had demonstrated that Washington would “struggle to impose economic sanctions in a crisis such as a Chinese blockade or invasion of Taiwan.”

“If there’s a silver lining to the tariff fiasco, it’s a timely reminder to Congress to get serious about true military deterrence again.”

These comments point to the key underlying objective issues in the conflict. For the US, the suppression of the economic rise of China is an existential issue if it is to maintain its global dominance.

But if the integrated character of the global economy means this objective cannot be obtained by economic and financial measures—and clearly it can’t because of the enormous damage inflicted on the US economy itself—then other, mechanical methods must be increasingly employed.