The US and China have reached an agreement that will significantly reduce their mutual import tariffs over a 90-day period, a significant de-escalation of their trade war.
U.S. Treasury Secretary Scott Bessent said the two countries will reduce their reciprocal tariffs for 90 days.
The announcement came after talks between the two countries in Switzerland, the first since US President Donald Trump imposed heavy tariffs on Chinese imports.
The huge taxes caused turmoil in financial markets and sparked fears of a global recession.
President Trump had imposed a 145% tariff on Chinese imports, while Beijing responded with a 125% tariff on some American products.
However, US tariffs on Chinese imports will now be reduced to 30% for 90 days, while Chinese tariffs on US imports will be reduced to 10% for the same period. The pause will begin on May 14.
The US measures also include an additional component aimed at pressuring Beijing to do more to curb the illegal trade of fentanyl, a powerful opioid drug.
The imposition of the tariffs had raised fears of a collapse in trade between the two countries, and American ports saw a sharp decline in the number of ships arriving from China.
Beijing, for its part, is increasingly concerned about the impact of tariffs on its economy. Factory production has already slowed, and some companies have been forced to lay off workers due to the halt in production lines for goods destined for the United States.
"The consensus of both delegations this weekend is that neither side wants decoupling," Bessent said in announcing the agreement.
"What had happened with these very high tariffs was the equivalent of an embargo, and neither side wants that. We want trade, we want more balanced trade, and I think both sides are committed to achieving that," the US official added.
China's Ministry of Commerce declared that the agreement reached with the US was an important step toward "resolving differences" and "laying the foundation for bridging differences and deepening cooperation."
According to the agreement reached in Switzerland, both countries will establish "a mechanism to continue discussions on economic and trade relations," which will be led by Bessent and Chinese Vice Premier He Lifeng.
Future talks may be held in China or the United States, the statement added.
The two countries recognize the "importance of their bilateral economic and trade relationship for both countries and for the global economy."
The statement said both the U.S. and China believe that "the ongoing talks have the potential to address each side's concerns in their economic and trade relationship," adding that the negotiations will proceed in the "spirit of mutual openness, continuous communication, cooperation, and mutual respect."
American ports recorded a sharp decline in the arrival of Chinese vessels.
Work still to be done
There's clearly optimism on both sides following this weekend's talks in Geneva, but much work remains to be done, according to BBC Business reporter Jonathan Josephs.
The 90-day tariff suspension gives the US and China more time to make progress, but the US's list of grievances is long.
President Trump has long been unhappy that the United States buys substantially more goods from China than it sells.
Other concerns include the lack of protection of US companies' intellectual property rights in China, including the forced transfer of technology.
There is also discontent over alleged Chinese government subsidies, which give its companies an unfair advantage, something Beijing says Washington also does.
And in some sectors, such as steel and aluminum production, it is argued that these subsidies encourage excess manufacturing that drives down global prices, an argument the Chinese government has also rejected.
Furthermore, there are disagreements over regulations in sectors ranging from food to cosmetics.
These differences have been brewing for years, so it's unlikely they can all be resolved by August, but substantial progress would certainly ease tensions.
China, for its part, had maintained a defiant stance in the face of the spiraling US tariffs. It retaliated with its own tariffs and promised not to back down.
This country can withstand the impact of an economic war with the United States, but only to a limited extent, explains BBC Beijing correspondent Laura Bicker.
Beijing officials are increasingly concerned about the impact tariffs could have on an economy already struggling to cope with a housing crisis and high youth unemployment.
Some Chinese factories have had to slow down production and lay off employees due to the impact of the tariffs.
Effect on the stock markets
News of the deal boosted stock markets, with Hong Kong's Hang Seng Index closing the session up 3%. China's Shanghai Composite Index had closed before details of the deal were known and ended up 0.8%.
European stock markets rose in early trading, and early indications suggested major US stocks would open 2-3% higher.
Russ Mould, investment director at AJ Bell, believes the deal is "a major step forward" for investors and has been welcomed "with open arms."
Oil prices rose on hopes that the tariff agreement would boost global growth, with benchmark Brent crude rising more than 3% to $64.14 a barrel.
However, the price of gold fell 3% to $3,224.34 an ounce.
The disruption caused by President Trump's tariffs has helped the price of gold rise in recent weeks, as it is considered a safer asset in times of uncertainty.