The Chinese scholar Lao Tzu wrote that "the journey of 1,000 miles begins with a single step." Today, the United States and China took a giant step toward restoring and revamping their trade relationship.
Yelling "Cut"
China and the U.S. conducted their first formal trade talks of 2025 over the weekend. And on Monday, May 12, they announced the outcome of their negotiations. The U.S. has agreed to roll back the tariff increase on Chinese goods from 145% to 30%, with China lowering its counter-tariffs to 10% from 125% for 90 days beginning May 14.
This agreement was a substantial announcement, as it effectively cuts the overall tariff applied to U.S. imports by around 10%. In turn, this move could reduce the projected one-time hit to U.S. inflation by a percentage point.
In addition, the two countries agreed to continue further discussions aimed at reducing the size of the U.S. trade deficit and addressing other trade-related challenges.
Market Fireworks
In response to the tariff announcement, markets appeared to be in a celebratory mood. As of roughly 10:00 a.m. Eastern time this morning:
- S&P 500 up 2.6%
- Crude oil up 3.2%
- Gold down 2.9%
- U.S. 10-year Treasury yield up 7 basis points
1,000-Mile Journey
Although today's action was an important step, it may only be one of many in the thousand-mile economic journey. Even with today's tariff relief, the U.S. has still seen the largest increase in effective tariff rates in many decades (remember that a baseline 10% tariff against many other trade partners is still in effect). Moreover, the trade developments with China and other nations could still have many twists and turns. We cannot completely rule out the risk of tariffs coming back after the pause expires. In fact, the first trade war between the U.S. and China had several tariff hikes, reductions and more hikes before the final signing of the "Phase One" deal.
Right now, we continue to believe that economic uncertainty remains elevated. Prior to today's announcement, we assessed that the risk of the U.S. economy tipping into recession over the next year was 40%. With today's encouraging news, we may lower that risk estimate in the days to come. But even with a reduction in recession risk, it's likely that recession risk will remain above the 15% to 20% norm for some time. Against this backdrop, we continue to stress the power of building diversified and robust portfolios and sticking to long-term goals.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
This material is not an offer, solicitation or recommendation to purchase any security.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
The Russell logo is a trademark and service mark of Russell Investments.
The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.
Products and services described on this website are intended for United States residents only. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained on this website should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Persons outside the United States may find more information about products and services available within their jurisdictions by going to Russell Investments' Worldwide site.
Russell Investments is committed to ensuring digital accessibility for people with disabilities. We are continually improving the user experience for everyone, and applying the relevant accessibility standards.
Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates Management, L.P., with a significant minority stake held by funds managed by Reverence Capital Partners, L.P. Certain of Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.
© Russell Investments Group, LLC. 1995-2025. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
© Russell Investments
Read more commentaries by Russell Investments
