The recent 90-day tariff reduction agreement between the U.S. and China marks a significant de-escalation in their trade tensions. Under this deal, the U.S. has lowered tariffs on Chinese imports from 145% to 30%, while China has reduced tariffs on U.S. goods from 125% to 10%.
This move aims to prevent further economic decoupling and foster more balanced trade relations.
Market Reactions
Financial markets have responded positively to the announcement. U.S. stock futures surged, with the S&P 500 and Nasdaq climbing up to 3.5%. The U.S. dollar strengthened, and 10-year Treasury yields rose, indicating increased investor confidence.
U.S. Dollar Price Today
As investors digest positive trade-related developments, the market focus now shifts to the release of the latest US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Wednesday and Thursday, respectively. Apart from this, Fed Chair Jerome Powell's appearance on Thursday will be looked for more cues about the future rate-cut path. This, in turn, will influence the USD price dynamics and provide a fresh directional impetus to the index.
10-Year Treasury Yields Rose In Response To Strong Consumer Confidence
The rise in the $10-YR T-NOTE - main 2506(ZNmain)$ 10-year Treasury yield on 12 May 2025, can be primarily attributed to increased risk appetite following positive developments in US-China trade talks.
It was primarily a market reaction to the positive news regarding US-China trade, leading to increased investor confidence and a move away from the safety of Treasury bonds.
Following the news, US stock futures surged, and the US dollar firmed. The 10-year Treasury yield rose by approximately 6 basis points, reaching around 4.45%, its highest level in about a month.
Here Are The Key Factors Which We Can Consider
US-China Trade De-escalation: On May 12, 2025, news broke that the United States and China had agreed to a 90-day tariff cut. The US would reduce tariffs on Chinese imports from 145% to 30%, and China would lower tariffs on US goods from 125% to 10%. This agreement was hailed as a positive step towards easing trade tensions that had previously created significant economic uncertainty.
Improved Market Sentiment: The friendly tone of statements emerging from the trade talks and the agreement itself boosted investor confidence and risk appetite. When investors feel more optimistic about the economic outlook, they tend to shift away from safe-haven assets like US Treasury bonds and move towards riskier assets such as stocks.
Shift from Safe-Haven Assets: As investors became more willing to take on risk, the demand for Treasury bonds decreased. Because bond prices and yields move inversely, this decreased demand led to lower bond prices and, consequently, higher yields.
Anticipation of Reduced Inflationary Pressures: The easing of trade tensions also suggested the potential for reduced inflationary pressures stemming from tariffs, which could have made the fixed income of Treasury bonds less attractive relative to other investments.
Positive Impacts
While there have seen how market have reacted in terms of the U.S dollar and 10-year Treasury Yield, here are some of the more important positive impact which I think we as investors should consider.
Reduced Costs for Businesses: Lower tariffs will directly translate to reduced costs for businesses in both countries that import goods from the other. This will alleviate some of the financial strain caused by the high tariffs imposed previously. For example, American companies importing electronics or consumer goods from China will face significantly lower duties, and Chinese firms importing agricultural products or machinery from the US will see similar relief.
Lower Prices for Consumers: As import costs decrease for businesses, some of these savings are likely to be passed on to consumers in the form of lower prices for a range of goods. This could help ease inflationary pressures in both economies. For instance, US consumers might see a decrease in the price of Chinese-made electronics, clothing, and household items.
Increased Trade Flows: The substantial reduction in tariffs is expected to boost trade volume between the two countries. With lower costs, businesses will likely increase their imports and exports, leading to greater commercial activity. This could be particularly beneficial for sectors that have been heavily impacted by the trade war, such as agriculture and manufacturing.
Improved Market Sentiment: The agreement signals a willingness by both sides to negotiate and de-escalate tensions, which can improve market confidence and reduce uncertainty for investors. The immediate positive reaction in stock futures following the announcement reflects this optimism.
Potential for Further Negotiations: The 90-day window provides an opportunity for the US and China to engage in more detailed discussions to address the underlying issues that led to the trade war. If progress is made during this period, it could pave the way for a more permanent resolution and further tariff reductions.
Relief for Global Supply Chains: The trade war has disrupted global supply chains, causing inefficiencies and increased costs. The tariff cuts could offer some relief by making trade between the two largest economies more predictable and less expensive.
Potential Considerations and Uncertainties
Temporary Nature of the Cuts: The tariff reductions are only for 90 days. Businesses will be mindful that tariffs could be reinstated or new measures imposed after this period, which might limit long-term investment decisions based solely on the current cuts.
Remaining Tariffs: Even with the significant reductions, tariffs will still exist. The US will maintain a 30% tariff on most Chinese goods, and China will have a 10% tariff on most US goods, in addition to any pre-existing levies. These remaining tariffs will continue to pose costs for some businesses and consumers. Notably, the US will keep a 20% tariff on Chinese imports related to fentanyl.
Non-Tariff Barriers: The agreement also mentions that China will pause or remove non-tariff countermeasures imposed since 02 April, including sanctions on some US firms and export controls on critical minerals. The implementation and impact of these removals will need to be monitored.
Underlying Issues Remain: The fundamental disagreements regarding trade imbalances, intellectual property rights, technology transfer, and other structural issues have not been resolved by this temporary agreement. Further negotiations are crucial to address these concerns.
Political Factors: The political climate in both the US and China could influence the trajectory of future negotiations and the likelihood of a lasting trade deal. Domestic pressures and strategic considerations will continue to play a role.
Economic Implications
For the U.S.
Inflation: The tariff reductions are expected to ease inflationary pressures. However, the U.S. Consumer Price Index (CPI) is likely to remain around 3% through 2025. $S&P 500(.SPX)$
Economic Growth: The reduction in tariffs may support consumer spending and business investment, potentially offsetting some of the negative impacts from previous tariff hikes.
For China
GDP Growth: China's GDP growth is projected to slow, with estimates indicating a 4.6% growth in 2025, down from previous forecasts .Economist Intelligence Unit
Currency Impact: The Chinese yuan may experience depreciation, with projections suggesting a rate of 7.45 yuan to the U.S. dollar by the end of 2026 .Economist Intelligence Unit.
What We Can Played This 90-Day Tariffs Cut?
Here are some of the beneficial which I have been monitoring, $Tesla Motors(TSLA)$ $Amazon.com(AMZN)$ $Apple(AAPL)$.
If you have noticed how these three stocks have been showing signs of a downward movement as there is a lot of uncertainity of the trade talk, so if the tariffs were to return back to the previous level after 90-day period, we can continued to protect it with 90-day option contract.
I will share more in a separate article on how I would plan to prepare myself for option trading for these three stocks using options for the temporary 90-day tariff cut.
Summary
The 90-day tariff cut between the US and China is a positive step that is expected to lower costs, increase trade, and improve market sentiment in the short term.
While the 90-day tariff suspension provides temporary relief, it is not a comprehensive resolution. Analysts remain cautious, noting that unresolved issues could resurface if a long-term agreement is not reached . Both nations have expressed a commitment to continued dialogue, which may pave the way for more substantial trade reforms in the future.
Businesses and consumers will be closely watching for signals of a more permanent de-escalation.
Appreciate if you could share your thoughts in the comment section whether you think we can continue to profit if we remain bullish on the major tech stocks and indices, or would you be also planning to do some option to see if you can profit after 90-days tariff cuts is over, it could move either way.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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