Hong Kong’s benchmark Hang Seng Index closed 3% higher, with the news coming around an hour before market close. The index has now recovered its losses since U.S. President Donald Trump announced “reciprocal tariffs” on April 2. S&P 500 futures are up 2.75%, as of 4:45 a.m. Eastern time. 

On Monday, the U.S. announced that it will roll back most of the tariffs it had imposed on China. For the next three months, Chinese goods will be charged a 30% tariff: a 20% tariff tied to alleged fentanyl smuggling, and the baseline 10% tariff on all U.S. imports. Retaliatory tariffs imposed on April 8 and 9, which hiked tariffs to 145%, will be canceled.

That means that if, after 90 days, the pause isn’t extended, tariffs on Chinese goods will rise to 54%.

In return, China will lower its tariffs on U.S. goods to 10%. Beijing will also pause some of its non-tariff retaliation.

‘Total reset’

Even before the pause reveal, Asian investors were optimistic that good news was on the way. U.S. and Chinese officials met in Geneva, Switzerland over the weekend, the first since Trump first imposed tariffs on China back in February.

On Sunday, U.S. Treasury Secretary Scott Bessent announced that the two countries had made “substantial progress” in negotiations. Trump, on social media, described the talks as a “total reset” in relations. 

In a separate press conference, China Vice Premier He Lifeng said the talks were “candid, in-depth, and constructive,” according to a transcript from Pekinology, a China-focused newsletter. 

The two sides also agreed to set up a new “trade consultation mechanism.”

That optimism helped lift Asia markets on Monday. Japan’s Nikkei 225 rose 0.4%, South Korea’s rose 1.2%, and Taiwan’s Taiex rose 1%. (All closed before the U.S. and Chinese announcement.)

De-escalating trade war

Monday’s tariffs pause is the latest, and most significant, rollback of Trump’s trade war with China. Both sides had quietly granted significant tariffs exemptions to key goods, like consumer electronics (on the part of the U.S.) and semiconductors (on the part of China).

Still, the U.S. economy was already starting to feel the effects of tariffs. Port operators predicted a steep decline in shipping volume, while U.S. businesses complained about delayed shipments.

China, too, faced the prospect of significant job losses from losing access to the U.S. market. In late April, Goldman Sachs suggested that up to 16 million jobs in China were exposed to the U.S. market.

Fear of real economic damage might, finally, have pushed both sides to start talking. 

“The consensus from both delegations is that neither side wanted a decoupling,” Bessent said in a press conference on Monday, following the announcement of the tariffs pause.