The trade agreement reached between China and the US in Geneva on May 12, 2025, aims to alleviate trade tensions caused by mutual tariff impositions and non-tariff measures since April 2025 by suspending some tariffs, canceling countermeasures, and establishing a consultation mechanism. The main contents include:
US: Suspend the additional 24% tariff on Chinese goods (including Hong Kong and Macau) for 90 days, retain the 10% tariff, and cancel some additional tariffs in certain administrative orders.
China: Suspend the additional 24% tariff on US goods for 90 days, retain the 10% tariff, cancel some additional tariffs in certain announcements, and suspend or cancel non-tariff countermeasures.
Subsequent mechanisms: Establish a high-level consultation mechanism led by Chinese Vice Premier He Lifeng and US Treasury Secretary Scott Bansen, as well as Trade Representative Jamison Greer, to continue discussing economic and trade issues.
Positive impact on China-US trade
Reduction of trade barriers:
Tariff suspension: Both parties suspend the 24% tariff (retaining 10%), which will lower the costs of imported and exported goods, particularly in manufacturing, consumer goods, and raw materials. For example, US agricultural products, energy products, and Chinese electronic products, textiles, etc., are expected to benefit.
Relief of non-tariff measures: China cancels or suspends non-tariff countermeasures against the US (such as regulatory restrictions), which may improve US companies' market access in China and boost bilateral trade volume.
90-day buffer period: Provides businesses with time to adjust supply chains and renegotiate contracts, reducing the uncertainty brought about by the escalation of the trade war.
Supply chain stability:
China and the US are at the core of the global supply chain, and the reduction of tariffs helps lower production costs for multinational companies, stabilizing the global supply chain involving Chinese and American enterprises. For example, Apple Inc. (USA) and its Chinese suppliers (such as Foxconn) may benefit from lower costs.
The agreement may promote a rebound in bilateral trade volume, especially after the decline in trade volume caused by the tariff war in April 2025.
Long-term potential of the consultation mechanism:
The establishment of a high-level consultation mechanism indicates both parties' intention to resolve differences through dialogue. If subsequent negotiations succeed, it may further cancel the 10% tariff or even resolve deeper issues such as technology transfer and intellectual property, promoting the normalization of trade relations.
Potential challenges
1. Short-term uncertainty:
After 90 days, whether the 24% tariff resumes will depend on the negotiation results. If negotiations fail, trade costs may rise again, impacting business confidence.
The retained 10% tariff still poses pressure on certain industries, such as high-tech products and agricultural products.
2. Structural problems unresolved:
The agreement does not address core differences, such as technology transfer restrictions, state-owned enterprise subsidies, and market access barriers. These issues may limit the depth of trade improvement.
The implementation of non-tariff measures (such as China lifting regulatory restrictions) may be delayed due to resistance from domestic interest groups.
3. Asymmetric impact:
China's exports to the US (electronic products, machinery, etc.) far exceed US exports to China (agricultural products, energy), and the reduction of tariffs may provide more apparent short-term benefits to Chinese exporters.
The US may pay more attention to the implementation of non-tariff measures to improve its companies' competitiveness in China.
3. Impact on China-US stock markets
Impact on the US stock market
1. Positive impact:
Decrease in enterprise costs: The suspension of tariffs has lowered costs for export companies to China (such as Boeing, agricultural companies) and companies relying on Chinese supply chains (such as Apple, General Motors), boosting profit expectations and potentially driving up related stock prices.
Market confidence boost: The agreement alleviates concerns about the escalation of the trade war and reduces panic about a macroeconomic recession. The technology, industrial, and consumer goods sectors in the S&P 500 may rise due to improved risk appetite.
Specific benefiting industries:
Agriculture: US agricultural exports to China (such as soybeans and corn) may increase due to the reduction of tariffs, benefiting companies like ADM and Bunge.
Technology: Companies like Apple and Intel, which rely on the Chinese market, may benefit from lower costs and a rebound in demand.
Retail: Retailers such as Walmart and Target may achieve higher profit margins due to reduced costs of imported goods.
2. Potential risks:
Short-term volatility: The 90-day temporary agreement may lead to market concerns about the results of subsequent negotiations, causing stock market fluctuations at key negotiation points.
Limited impact: The retained 10% tariff and unresolved structural issues may limit the long-term upward potential of sensitive industries such as technology.
Impact on the Chinese stock market
1. Positive impact:
Export enterprises benefit: The reduction of tariffs directly benefits Chinese export-oriented enterprises (such as electronics, textiles, and machinery), and related sectors in the Shanghai Composite Index and Shenzhen Component Index may rise. For example, Huawei supply chain companies, Hikvision, etc. may benefit.
Consumer market: The decline in the cost of American goods (such as agricultural products and luxury goods) may stimulate the Chinese consumer market, benefiting retail and e-commerce platforms (such as JD.com and Alibaba).
Investor confidence: The agreement alleviates external pressures, and A-shares and Hong Kong stocks may experience short-term increases due to improved risk appetite, especially in technology and manufacturing sectors.
2. Potential risks:
Policy uncertainty: If subsequent negotiations do not result in further agreements, the resumption of the 24% tariff may hit export enterprises and trigger stock market corrections.
Structural pressure: The Chinese stock market is significantly affected by domestic economic factors (such as real estate debt and weak consumption), and the boosting effect of the agreement may be diluted by internal and external factors.
Common trends
Global market linkage: The Chinese and US stock markets may rise simultaneously due to positive signals from the agreement, especially in the early days after the announcement (a few days after May 12). The Hang Seng Index, Nasdaq, etc., may benefit from increased cross-border investment.
Industry differentiation: Export-oriented enterprises (present in both China and the US) and companies related to the global supply chain will significantly benefit, while domestic-oriented enterprises will be less affected.
Volatility warning: The progress of the 90-day negotiation period will become an important driver of stock market volatility, and the market may be highly sensitive to any developments in the negotiations.
Summary and outlook
China-US trade
The Geneva agreement lays the foundation for easing China-US trade relations by suspending high tariffs and non-tariff measures, reducing trade costs in the short term, stabilizing supply chains, and providing businesses with room for adjustment. In the long term, the establishment of a consultation mechanism provides a possibility for resolving deeper issues, but the uncertainty of tariffs after 90 days and structural differences may still limit the depth of trade improvement. It is expected that bilateral trade volume will moderately rebound in the short term, with export-oriented industries benefiting the most.
Stock market impact
The agreement constitutes a short-term benefit for both the Chinese and US stock markets, particularly in the technology, manufacturing, agriculture, and retail sectors. The S&P 500 and Nasdaq in the US may rise due to improved corporate profit expectations, while Chinese A-shares and Hong Kong stocks may strengthen due to a recovery in exports and boosted market confidence. However, the outcome of the 90-day negotiation period will determine the sustainability of market trends. If subsequent negotiations fail, the stock market may face a risk of correction; if further tariff reductions occur, the market may experience stronger gains.
Suggestions for attention
Stock market sectors: Focus on leading enterprises in the technology, agriculture, and consumer goods sectors in both China and the US (such as Apple, ADM, Alibaba).
Negotiation progress: Track subsequent statements from representatives such as He Lifeng, Bansen, and Greer to assess the direction of negotiations.
