Geneva Agreement: US and China Establish Trade Truce

In a significant change in international trade relations, the US and China announced yesterday, May 12, 2025, a historic agreement in Geneva that establishes a temporary truce in the growing trade war between the world’s two largest economies.

Main points of the agreement between the US and China

1 The so-called “Geneva Agreement” includes the following measures that will come into force as of May 14:

Substantial reduction in tariffs:

The US will reduce its tariffs on Chinese products from 145% to 30%.
China will reduce its tariffs on American products from 125% to 10%.

2 Initial period of validity:

The truce will last 90 days, during which the parties will continue negotiations.

3 Elimination of non-tariff barriers:

China has committed to suspending or removing non-tariff countermeasures implemented against the US since April 2, 2025;
This includes the possible removal of American defense and technology companies from the Chinese “banned list”;
Filing of anti-dumping investigations, such as the one underway against the DuPont company.

4 Establishment of a permanent dialog mechanism:

Creation of a permanent channel of communication between the two countries for economic and trade discussions.

What remains in force

Some previous trade measures have not been changed by the agreement:

Tariffs imposed before April 2, 2025 remain in force;
The 20% fentanyl-related tariff implemented by the US in February and March 2025 remains;
US measures to eliminate import exemptions for low-value orders (“de minimis” rule) have not been repealed;
Specific tariffs on Chinese electric vehicles, steel and aluminum remain in force.

Background to the US-China trade war

The recent tariff escalation began in early 2025, when President Trump implemented tariffs of 10% on Chinese imports, which were subsequently raised to 20% in March. In April, on the so-called “Liberation Day”, Trump increased these tariffs to 34% and, after a series of retaliations and counter-retaliations, US tariffs on Chinese products reached 145%, while Chinese tariffs on US products reached 125%.

Reactions to the agreement

President Trump declared that he does not expect tariffs to return to the 145% level after the end of the 90-day period, and stated that he believes Washington and Beijing will reach a definitive agreement. According to him, China has already agreed to open its market to the US, but stressed that this “will take time to put on paper”.

The global financial markets reacted positively to the announcement, with stock markets recovering and exchange rates changing, reflecting relief that the risk of a global recession caused by the trade war had diminished.

Next steps

The agreement provides for alternating meetings between the two countries, which can take place in China, the US or a third country by agreement between the parties. Technical consultations on economic and trade issues may be held when necessary to advance negotiations on a more comprehensive agreement.

This agreement represents an important change of course in the trade tensions that had been intensifying since the beginning of the year, offering a path towards the gradual normalization of economic relations between the two superpowers.

Written by Isar Galbinski, Tax Planning Consultant at Drummond Advisors