Nigel Green
The US and China have agreed to sharply lower tariffs for the next 90 days, offering a crucial pause in a trade war that is straining global supply chains and testing the patience of capital markets.
The deal, struck in Geneva, Switzerland, and announced on Monday (May 12), cuts US tariffs on Chinese goods from 145% to 30% and reduces Chinese duties on American imports from 125% to 10%.
While limited in duration and uncertain in outcome, the agreement is already delivering tangible effects on Asian markets, currencies and sentiment.
Asian equities rallied in the immediate aftermath, led by exporters, semiconductor manufacturers and industrials. Hong Kong’s Hang Seng Tech Index up 5.2% at the close, the biggest gain in two months.
The most telling response could be in foreign exchange markets. The dollar enjoyed its best day in over a month on a trade-weighted basis, but the big question for FX markets going forward is whether the damage to the greenback’s long-term standing has already been done.
While the initial market reaction today was clearly dollar-positive, it also reflected stretched short positioning being unwound, Bloomberg reported. Before today’s announcement, the Taiwan dollar surged and was up more than 8% against the greenback this year, and certain other Asian currencies have followed suit.
This isn’t just noise or temporary rebalancing; it’s a shift in positioning. The recent strength in Asian currencies reflects two key forces. First, a mechanical one: lower tariffs reduce inflationary pressure on imported goods, giving central banks in emerging Asia more breathing room.
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