A 90-day trade ceasefire between the United States and China, announced following high-stakes negotiations in Switzerland, has delivered an unexpectedly positive jolt to global markets and economic forecasts. Tariffs on both sides were rolled back to pre-"Liberation Day" levels, with the US reducing duties on Chinese goods to 30%, and China cutting tariffs on US imports to 10%.
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Described by ING analysts as "a larger-than-expected de-escalation", the agreement was labelled a "win-win" that could provide critical breathing room for both economies. 'Although the de-escalation of the trade war benefits both economies, the agreement, which significantly lowers tariffs without any concessions, is likely to be viewed as a particular victory for China,' ING stated.
China had long insisted on tariff reductions as a precondition for meaningful talks. The agreement appears to meet that demand, suggesting that Beijing's firm but measured responses in earlier escalations helped keep the negotiation window open. 'Restoring tariff levels to this state has once again opened the door for those negotiations to continue,' ING commented.
Despite the 145% tariff hike in April, China's exports to the US fell by just -21% year-on-year, highlighting the resilience of demand for Chinese goods. 'This is consistent with anecdotal evidence that many Chinese exports do not necessarily have an obvious or easy substitute product,' the report added.
The reduction in tariffs is expected to lead to a notable rebound in China's export activity and economic performance. 'In our view, the reduction of tariffs on China back to 30% is a sufficient reduction to allow for a more or less return of normal trade,' ING analysts wrote. The bank subsequently upgraded its 2025 growth forecast for China to 4.7%, noting that further upside was possible if a broader deal emerged within the 90-day window.
The yuan responded positively, with USD/CNY and USD/CNH both trading at 7.21, now below pre-"Liberation Day" levels. 'Positive news flow could encourage capital inflows and support further strengthening of the CNY in the near term,' ING stated.
Global financial markets echoed the optimism. 'We've seen quite the market euphoria on the back of a potential deal between the US and China,' the report noted. Bond yields surged, equities rallied by 1-2%, and EUR credit spreads tightened by up to 10 basis points in high-beta segments. In foreign exchange, the Japanese yen and Swiss franc lost ground against the dollar, while the euro slipped below the 1.11 threshold.
Credit markets also saw increased activity and investor appetite. 'May is set to be a very busy month for supply, and now even more so with spreads tightening further. There is still plenty of cash ready to be put to work and we expect new issues will continue to be met with large demand,' ING noted.
While uncertainties remain, this temporary détente has sparked optimism across sectors and regions, with ING concluding: 'This brings credit spreads back down towards the previous range where spreads had been before the tariff turbulence a month ago.'
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