A timeline of the current administration’s trade and tariff policy in 2025 is extensive with many daily and weekly changes and updates. Heading into this past weekend, the total tariffs on China were 145%, including the 20% fentanyl tariffs. Additionally, prior to this announcement, China increased its tariffs on American goods to 84%, a retaliatory response to the U.S.
The 90-day pause in tariffs marks a significant shift in U.S.-China trade relations, especially considering that just last month, on April 12th, many, including the Washington Post, feared a full economic break between the two countries. At that time, fears of escalating tariffs and retaliatory measures raised concerns about a possible global recession and continued market turbulence. The decision to suspend additional tariffs temporarily suggests a possible de-escalation in trade tensions and a willingness by both sides to return to negotiation, even if only in the short term.
What is the significance
Early Monday morning, CNBC reported a major shift in U.S.-China trade policy, stating: “The trade agreement means that “reciprocal” tariffs between both countries will be cut from 125% to 10%. The U.S.′ 20% duties on Chinese imports relating to fentanyl will remain in place, meaning total tariffs on China stand at 30%.” In the short term, this temporarily pauses the escalating trade war that threatened to disrupt over $650 billion in annual bilateral trade. This pause could prevent further economic damage, such as supply chain disruptions and price hikes for consumers. Within hours of the announcement, the market sentiment shifted, with recession concerns appearing to ease.
Based on activity on Polymarket, a decentralized predication market platform where users bet on outcomes of real-world events, the market-implied change of a U.S. recession in 2025 rose to around 40% shortly after the news. Polymarket describes itself as a prediction platform that aggregates news, polls, and expert insights to provide real-time, market-based forecasts on future events, aiming to offer a more accurate alternative to traditional punditry. While platforms like Polymarket are not infallible, they are increasingly used as one of several tools for gauging sentiment and expectations in financial markets. Polymarket offers an additional lens for interpreting economic developments; their forecast should be considered as one of many data points, not definitive predictors and cannot guarantee any outcome in the future. These markets are not regulated financial exchanges and should not be relied upon as a basis for investment decisions.
The Trump administration released a fact sheet on Monday, May 12, claiming credit for “securing another historic deal” and reaffirming its focus on working towards reducing the U.S. goods trade deficit with China – the largest such deficit with any trading partner. The fact sheet also states there is a mechanism in place for continued negotiation. Following the meetings in Geneva, U.S. Treasury Secretary Scott Bessent stated, per Reuters, that “neither side wants to decouple,” while Chinese Vice Premier He Lifeng characterized talks as “candid, in-depth and constructive.” These statements suggest that diplomatic channels remain open, which could support continued engagement in trade policy.
Market impact
On Monday, May 12, the U.S. stock market rallied in response to the announcement of a 90-day pause in the U.S.-China trade war, with significant tariff reductions. The S&P 500 gained 3.3%, marking its best day since April 9, 2025, and closed at its highest level since March 3, 2025. The Dow Jones Industrial Average rose 2.8%, or over 1,100 points, while the tech-heavy Nasdaq Composite climbed 4.3%. The S&P 500 closed the day just slightly lower for the year, recapturing nearly all the losses from earlier in the year.
Tech stocks were the leaders on the day with Amazon (AMZN) jumping 7.6%, Tesla (TSLA) gaining 7.8%, and other large cap tech firms like Apple (AAPL), Meta (META), and Alphabet (GOOG, GOOGL) also moving higher. More acutely, top retail stock gainers included Target (TGT), Best Buy (BBY), Dollar Tree (DLTR), Five Below (FIVE), Wayfair (W), and Dick’s Sporting Goods (DKS). Telsey Advisory Group’s Joe Feldman told Yahoo Finance the move “may have just saved the Christmas season,” as retailers can bring in the inventory now and “start to get product in.”
What Happens Next
If the last few months have taught us anything, it’s that when it comes to the U.S.-China trade war, or the new global tariff policy more broadly, nothing is certain, and we can expect the unexpected. While we hope the progress with China announced over the weekend continues, the reality is the announcement is only a trade pause and not a finalized deal.
Both sides could use the 90-day window (ending around August 2025) to negotiate a broader deal. The U.S. may push for concessions on intellectual property, market access, and fentanyl-related issues. These are all core issues that the current administration has been vocal about. While it’s possible China could also remain adamant on tariff rollbacks and fewer tech restrictions. A potential next step in the diplomatic process could be President Trump and President Xi meeting at some point before August or at the very least a formal announcement for such a meeting scheduled later this year.
The less ideal scenario would be if the talks stall and either side decides to re-escalate tensions. In that case, the U.S. might consider reinstating higher tariffs or introducing new ones, while China might respond with retaliatory measures, potentially including targeted tariffs on U.S. agriculture or technology sectors. China may even look to threaten the U.S. with non-tariff barriers like export controls on rare metals. If this were to play out, there likely would once again be concerns about inflation in the U.S. and potentially recession fears for the U.S. and China economies, perhaps spilling over to having a more global impact.
On a global basis, approximately 57 days remain in the 90-day pause announced on April 9th with all other countries, except for China. According to CNBC, over 75 countries are currently negotiating with the U.S. Departments of Commerce, Treasury, and the U.S. Trade Representative (USTR) to address trade barriers, currency manipulation, and tariffs. The outcome of these discussions, particularly whether formal agreements are reached that align with stated U.S. trade objectives, may influence the administration’s decision to extend the pause or reinstate tariffs once the 90-day period concludes.
Asset Allocation Still Key
As we have seen, when the two largest economies in the world engage in economic battle, the impacts are wide ranging and consequential. No one knows how this will play out and the probability of different outcomes occurring changes by the day and hour. This further reinforces what Eric Udvari shared in his May 6th article on the importance of asset allocation. If you haven’t read that yet, I would encourage you to do so as it discusses the impact of market volatility on retirement planning. What Eric shared last week should be viewed in the same way, regardless of if there has been some reason for optimism from the U.S.-China 90-day pause. Eric points out that holding a diversified portfolio of investments including stocks, bonds, real estate, cash and alternatives may help to reduce an investor’s risk. He goes on to say that asset allocation decisions should be based on your specific time horizon, income needs, and risk tolerance – using the technique of rebalancing on an ongoing basis. Here at Howe & Rusling, we pride ourselves on engaging with our clients in a direct and personal way when there is volatility in the markets. During times like these, having a trusted advisor to help make sense of the constantly changing economic conditions can be helpful. As always, we look forward to continuing to work with you as we navigate these uncharted waters together.
Disclosures: The information provided herein is for informational purposes only and should not be construed as investment advice, a recommendation, or an offer to buy or sell any securities. The views expressed reflect the opinions of the author as of the date of publication and are subject to change without notice. This material may include forward-looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Any references to specific securities, sectors, or market indices are for illustrative purposes only and do not constitute a recommendation or offer to buy or sell any securities or to adopt any investment strategy. Past performance is not indicative of future results. While information contained in this publication is based on sources we believe to be reliable, we do not guarantee its accuracy or completeness. Third-party content (e.g., CNBC, Reuters, Washington Post, Polymarket) is cited for informational purposes only and does not imply endorsement. Platforms such as Polymarket are not regulated financial exchanges and should not be used as the basis for any investment decisions. Market and economic conditions are subject to change, and there is no guarantee that any forecasts or projections will be realized. The mention of asset allocation strategies is not intended as individualized advice; investors should consider their unique investment objectives, risk tolerance, and financial situation before making any investment decisions. Howe & Rusling is an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. For additional information about our services and fees, please refer to our Form ADV Part 2A and our relationship summary (Form CRS), available upon request or on our website. Investing involves risk, including the potential loss of principal. Diversification and asset allocation do not guarantee a profit or protect against loss in declining markets.
