SINGAPORE – The surprise tariff deal between the US and China, worked out after just two days of negotiations, was a positive development that could lift global market sentiment despite its temporary nature, analysts said.

Ms Selena Ling, OCBC Bank’s chief economist and head of treasury research and strategy, called the deal a “positive start”.

“But whether the 90-day reduction will yield something more permanent without further surprises will require patience,” she added.

Under the deal announced on May 12, which will last for 90 days, US exports to China will see tariffs reduced to 10 per cent from 125 per cent, while tariffs on Chinese exports to the US will be reduced to 30 per cent from 145 per cent.

Mr Tai Hui, Asia-Pacific chief market strategist at J.P. Morgan Asset Management, said the magnitude of the tariff cuts is larger than expected.

Just ahead of the bilateral talks over the weekend, US President Donald Trump had floated an alternate tariff figure of 80 per cent that he said “seems right”.

Mr Tai said: “This reflects both sides recognising the economic reality that tariffs will hit global growth, and negotiation is a better option, going forward.”

While he believes the 90-day period may not be sufficient for the two sides to reach a detailed agreement, it keeps the pressure on the negotiation process.

Mr Stuart Rumble, Fidelity International’s head of investment directing for Asia-Pacific, said the short-term reprieve is “an encouraging signal for markets and should help restore some confidence”.

“While the headline tariff cuts are sharp, they are also time-limited. But for now, sentiment may matter more than substance for market confidence – and domestic political support – than the content of any substantive agreement,” he said.

Markets reacted swiftly to the news. While most South-east Asian stock markets, including Singapore, were closed on May 12 for the Vesak Day holiday, Chinese, Hong Kong and Japanese stocks rallied on the news.

China’s blue-chip CSI 300 Index closed up 1.2 per cent and the Shanghai Composite Index added 0.8 per cent before the details came out. Japan’s Nikkei 225 Index ended up 0.4 per cent.

Wall Street stocks were set for significant daily gains, with the S&P 500 index rising 2.9 per cent in early trades and the tech-focused Nasdaq Composite advancing by 4 per cent.

The US dollar, which had suffered major losses against a long list of currencies after Mr Trump announced his reciprocal tariffs policy on April 2, also saw a turnaround.

The US Dollar Index, a measure of the greenback’s value against a basket of 10 major currencies, rose 1.1 per cent as at 3:34pm Singapore time. It gained 1.7 per cent against the Japanese yen, 1.2 per cent versus the euro, and was up 0.7 per cent against the Singapore dollar.

The renminbi also strengthened to 7.2001 against the US dollar to reach a six-month high, while its offshore counterpart rose more than 0.5 per cent.

“Previously, the hope was just that the two sides can sit down to talk, and the market had been very fragile,” Mr William Xin, chairman of hedge fund Spring Mountain Pu Jiang Investment Management in Shanghai, was quoted as saying by Reuters. “Now there’s more certainty. Both China stocks and the renminbi will be in an upswing for a while.”

At a press briefing in Geneva on May 12, US Treasury Secretary Scott Bessent said the US and China are in agreement that “neither side wants to decouple”.

He added that the tariff reductions announced do not apply to sectoral duties – such as those on aluminium and steel – imposed on all US trading partners, and the tariffs applied on China during the first Trump administration remain in place. A separate joint statement, also issued in Geneva, said: “The parties (US and China) will establish a mechanism to continue discussions about economic and trade relations.”

Mr Rumble from Fidelity International said that even with the latest tariff cuts, much of the shift in global trade flows has already begun, with the decline in direct US-China trade driving increased rerouting through South-east Asia and other so-called third countries. “Tariff differentials remain relevant and will continue to shape trade flows based on relative competitiveness, infrastructure capacity, and domestic policy responses,” he said.

While these structural shifts will take time to materialise as companies adapt their supply chains and logistics, they are important for investors considering their allocations to Asia, he noted.

Mr Rumble also added that the latest development should perhaps be seen as an easing of tensions within a broader, long-term shift towards greater self-sufficiency by both the US and China.

Asia News Network/The Straits Times