Updated May 12, 2025 at 4:05 PM CDT
Stocks rose sharply Monday after the U.S. and China announced a temporary break from triple-digit tariffs that had brought much of the trade between the two countries to a standstill in recent weeks.
The Dow Jones Industrial Average soared more than 1,000 points, to gain around 2.8%, while the S&P 500 index gained 3.3%.
The surge in stocks came after the two countries agreed to slash the crippling tariffs for 90 days following talks in Geneva over the weekend. The tax on Chinese imports to the U.S. will drop from 145% to 30%, while the tariff China charges on U.S. goods will fall from 125% to 10%.
The pause comes after many businesses that rely on imports had halted deliveries to avoid paying a triple-digit tax. Cargo traffic at the Port of Los Angeles last week had fallen by more than a third from a year ago, raising the prospect of supply shortages in the near future.
The remaining tariffs are still significantly higher than Americans were used to paying, however, before President Trump launched his trade war.
Lower tariffs could still hit the U.S. economy
Even with the temporary reduction in tariffs, forecasters at the Yale Budget Lab say the U.S. is likely to have higher inflation and slower economic growth than it would have before the trade war started.
But the damage is less than the higher tariffs would have caused, had they remained in place. What's more, the lower tariff actually raises more revenue for the government, since more importers will grit their teeth and pay the tax, whereas the higher levy just brought imports from China to a standstill.
"This is one of the problems with tariffs as a revenue raising mechanism," says economist Ernie Tedeschi of the Budget Lab. "The lowering imports goal of tariffs runs completely against the revenue-raising goal."
Because the tariff relief has an expiration date while negotiations continue, there is still considerable uncertainty over what the trade landscape will look like in three months..
"I was surprised by how low the United States cut the tariffs as a result of this deal," Tedeschi says. "That opens up the possibility that tariffs with China will be lower than the market and businesses expected."
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