UPDATE: Major US-China Tariff Cuts Propel Stocks And Dollar Higher
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This is the Bloomberg Daybreak Europe podcast, available every morning on Apple, Spotify or wherever you listen. It's Monday the 12th of May in London. I'm Lizzie Burden. And I'm Stephen Carroll. Coming up today, substantial progress may have been an understatement. The US and China agree to significantly lower tariffs in a 90-day cool-off period. The US cuts its levies on Chinese goods from 145% to 30%, while China reduces its duties from 125% to 10%.

Markets rejoice. S&P e-mini futures jump as much as 3% as equities power ahead.

Let's start with a roundup of our top stories. The United States and China have agreed to significantly cut tariffs on each other's goods in a 90-day pause of the trade war between the world's two largest economies. The US will reduce its tariffs from 145% to 30% on Chinese imports, while China will bring its levies down to 10% from 125%.

U.S. Treasury Secretary Scott Besant says neither country wants to see trade between them stop.

The consensus from both delegations this weekend is neither side wants a decoupling. And what had occurred with these very high tariffs, as Ambassador Greer said, was the equivalent of an embargo. And neither side wants that. We do want trade.

Besant added that the US still wants supply chain independence in six key industries and will continue with what he called strategic rebalancing in those sectors. The pause was announced in a joint statement with China, with a foreign ministry spokesperson in Beijing declining to give further details.

Well,

We were actually surprised by the number that came out. The kind of hearing all word on the street was 50 to 60 percent on China. So I think that was a net positive. And you're seeing huge reaction, especially in the U.S. equity market, which makes sense because that was the market that was and the economy as a whole that will be more affected by it. So I would say it's a risk-conceived at least for the next few days.

That's BNP Paribas, Benedict Lowe speaking there. As we are seeing European stocks rising as well, as the dollar has rallied the euros, heading for its worst day this year against the dollar, down currently 1.2% at 1.11. The yen also dropping by 1.7%. Gold prices sliding too, down 2.9% as crude oil has rallied.

The Treasury Secretary also used the press conference to make the case for the way in which the US likes other nations to approach relations. Scott Besant told the press the positive mood music set by the UK and Swiss teams was in stark contrast to that of the EU.

UK and Switzerland have moved to the front of the queue for the trade deals, whereas the EU has been much slower. So we value that also. Treasury Secretary Scott Besant speaking there in Geneva after the US and UK last week secured an agreement to roll back some of the Trump administration's recent tariffs on the British economy.

Pharmaceutical stocks have dropped after President Trump announced plans to sign an executive order later aimed at significantly reducing US prescription drug prices. In Europe, obesity drug maker Novo Nordisk fell by as much as 8.6% at the open, one of the steepest decliners in the stock's 600 healthcare index, which slid by 3.3%. With more details, here is Bloomberg's Tiwa Adebayo.

While the details remain unclear, the president claims the order will require that Americans pay no more than the lowest price charged for the same medication in any other country. In a post on Truth Social, Trump said the move could lower U.S. drug prices by as much as 80%. Americans currently pay the highest prices in the world for prescription medications.

However, drug makers argue that such reforms would cut into their revenues and undermine the development of breakthrough therapies that could extend and improve lives. In London, Tiwa Adebayo, Bloomberg Radio. To earnings, Unicredit has posted first quarter profit that topped analysts' expectations.

as net income in the first three months of the year rose to €2.77 billion. The results strengthen the hand of CEO Andrea Orchelle as he pursues potential acquisitions, including Germany's Commerzbank and an unsolicited bid for Italy's Banco BPM. Unicredit, Italy's second-largest bank, is now forecasting annual profit exceeding €9.3 billion. The shares are up more than 3%.

Vladimir Zelensky says he will be waiting for Vladimir Putin in Turkey on Thursday. The leaders of Russia and Ukraine are being pushed to begin peace talks by the United States and Europe. Ukraine's president says Kyiv is ready to end this war.

Ukraine, we have absolutely no problem engaging in negotiations. We are ready for any format. I will be in Turkey this Thursday, the 15th of May, and I expect Putin to come to Turkey as well. Zelensky's planned trip comes after US President Donald Trump insisted the two leaders meet despite Moscow's reluctance to agree to a 30-day ceasefire.

The UK and other European countries say they are readying a dramatic increase in sanctions on Russia should Putin not engage with negotiations. Those are your top stories this morning on the markets. The stock 600 is higher half of a percent. On Wall Street, S&P E-mini futures are up 2.5 percent. Now, SAC futures up 3.3 percent. And the 10-year U.S. Treasury yield is up seven basis points at 4.44 percent.

In a moment, we'll bring you analysis of the US-China trade war pause and take you through the big reaction on markets. But Lizzie, listening to the US Treasury Secretary Scott Bassett and Jameson Greer, the US Trade Representative speaking in Geneva, announcing those measures, it did strike me that both yesterday and today they've mentioned the setting. They've talked about how, you know, the fact that they were in such a beautiful place with lots of tranquility really helped to steer those discussions along. And even Jameson Greer going as far as sort of making a dig at hotel diplomacy. I know.

saying that because they were in the Swiss ambassador's residence, the Swiss delegation to the United Nations in Geneva, that's where some of those talks took place. And he was saying that really helped them get the deal across the line. This is a new era for mountain diplomacy, maybe. Lake diplomacy? Bit harsh on the hotel. But look, we've got the peak.

district, the Lake District. If anyone wants to come here and negotiate, build on that UK-US trade pact, I'm sure that they can do it here. Well, that's bringing more details on what we heard from those US representatives on this tariff pause between the US and China. Our trades are Brendan Murray is with us for more in studio. Brendan, good morning. How significant is the relief for both economies from what we heard?

Well, it's very significant for the Chinese economy. What we saw today was a major pullback in the trade war that the U.S. waged against China. Remember, yesterday, there were 145% tariffs on almost every Chinese import into the U.S. That gets reduced down to 30%, which, if you recall, President Trump said just a few days ago that 80% sounded reasonable.

So what the U.S. walked out of there today with is less than half of what Donald Trump said was reasonable. If you're on the Chinese side, you got a great deal given what you gave up. Remember, China had two duties on American imports into China, but much less than China ships to the U.S. So if you're in Beijing today, you might be calling this China.

just six weeks from Donald Trump's Liberation Day, the U.S. retreat day in a large way, because definitely the heat of the trade war is much lower now. And that gives time, three months is what this period of negotiation will move into next. And it gives them time

gives the two sides a chance to work through the pretty major disagreements that they still have. But I think the analysis at the end of the day is going to be that the U.S. gave up a lot of its leverage.

Do you read anything, Brendan, into the fact that the China foreign ministry offered no further comment on the trade deal? I'm no analyst of Chinese politics, but they wouldn't want to be seen as grandstanding. But we'll have to wait and see what the trade hawks in Washington say when they wake up this morning. But my guess is that it will be seen as a major, almost

too much of a retreat from Washington's perspective. I mean, what does that mean for trade flows? We've been reporting about how so many of Chinese goods had been moving away from the U.S. to other countries in anticipation of these or as these tariffs have taken effect as well.

What about the prospect that a 90-day pause could be enough for some of that damage to be undone? It could. A 30% tariff on Chinese imports into the U.S. can be managed. 145% can't

So you can divert products to other countries where you can ship from to avoid tariffs. But this is going to be—remember, this 30% is divided into two segments, the 10% baseline that every other country gets and the 20% fentanyl tariff that the U.S. put on China. China can get out of that fentanyl tariff if it does what the U.S. wants.

wants it to crack down on the export of the materials used to make fentanyl. So at the end of the day, China is in the same place as everybody else is, could be. And most China hawks in Washington would say they're the biggest violator of trade rules. So it'll be interesting to see how the Trump administration defends what it got here.

Certainly, markets like it, that will be seen as a positive. But if you're in a long-term trade disagreement with China to rebalance $1.2 trillion trade imbalance, this...

This is going to make it more difficult to apply leverage to China. So how much hope is this going to give to other countries that they can negotiate good terms too? Yeah, you would think that this would give them some sense of relief between this deal and the deal that the UK signed last week.

A lot of these details are still kind of vague, and there's not a whole lot of fine print on either of these two. But you've got to think that the U.S. administration has heard the concerns from U.S. businesses about how they came out of the gates,

fast and high with their tariffs, and that is applying economic pain to the U.S., and that they are now in a situation where they have to bring those down in a big way. This is not uncharacteristic of Donald Trump's style. He

comes in big with his hardest punch, and then he says, "Then we'll negotiate things in a calmer fashion." This seems to be what we're hearing. We heard Scott Besson say today that he and the U.S. Trade Representative Jameson Greer say, "We don't want to decouple from China. We don't want a trade embargo."

And what that's doing to the U.S. economy right now is causing a lot of disruption, and a lot of small companies can't do business with tariffs of 145% on their Chinese parts and products.

And so I think what we're seeing is a pretty sharp pullback from the U.S. administration. Now, that could all change, too. Tariffs can come back as soon as they go away. But it looks today like the U.S. gave more concessions than China did. Okay. Brendan Murray, our trade czar. Thank you very much. Well,

Well, let's get to the market reaction now. Kriti Gupta, who anchors the opening trade on Bloomberg Television, has been watching the markets move in real time. And she joins us now in the studio. Kriti, what stood out for you in the market reaction? Particularly, the equity moves seem pretty stunning.

So the bar was high going into this presser. There was a lot of optimism baked in, really starting on Friday, actually. And you saw it on both sides of the Atlantic. And then over the weekend, the substantial progress line, even Donald Trump's buy stocks on Friday was, or on Thursday night, I should say, was quite telling.

We didn't expect this kind of optimism, though, because as Brendan was saying, the expectation, the line in the sand was 80%. To come down to 30% is massive. A 115% reprieve on that tariff rate is enormous. The problem here and the hiccup here that you're going to see perhaps...

maybe filter through the markets in the next couple of days, is that this is only for 90 days. And those tariffs initially were meant to be put on for 90 days. That 145% was meant to be for 90 days. And we're not even, I don't even think we're 30 days through, maybe a little over 30 days, and already we're seeing a reversal. So when you start to see some of the commentary come from Donald Trump or Scott Besant, that's where the red herrings kind of lie in some of the data. But right now, again, the bar was high and Scott Besant lost.

already beat it. So the optimism is showing up in the equities picture, in the bonds picture, in the currencies picture, and even in oil, which was really weighed down by those growth concerns. But how sustainable can this sentiment be to your point that this is only 90 days? So there are a couple of things. So now this has kind of shown... So you're right, it's not sustainable because this can always U-turn. And that is the kind of word on the street here. But what it is showing is a mechanism with which to de-escalate. And that is a crucial piece because...

30 days ago, we didn't have this mechanism. We didn't have high-level talks. We didn't even have lower-level talks for then ultimately Scott Besson to go over to Geneva and sign the deal. Both sides were not talking. And I think that has been the real game changer here, that if there was some sort of hiccup in policy, for example, and you heard that in the press conference from Scott Besson, that he brought up the cartels in terms of the fentanyl trade in Mexico. He brought up currency manipulation. He brought up the fact

that both sides, the U.S. and China, were acting in their national interests. So it wasn't exactly the all-friendly, all-sunshine-and-rainbows. There were clear pieces of concerns that were still meant to be. The currency manipulation is a piece of it. Notably absent was the fact that the Treasury Secretary didn't talk about the massive holdings of Treasuries

that China has. So you can see that there are still sticking points. But now we know that if things were to ratchet up, there is a way back to de-ratcheting. Okay, Kriti Gupta, opening trade anchor from Bloomberg Television. We thank you.

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Starting price for 25 megabits per second LTE internet plan with smartphone plan savings, plus taxes, fees, and economic adjustment charge. Terms apply. For J.D. Power 2024 award information, visit jdpower.com slash awards. Let's bring in our Hong Kong News desk editor, Jill Desis. Jill, good morning. Does this count as a win for Beijing? I'm here just trying to parse through all of the numbers along with everybody else. And I do think this is a pretty significant improvement for China. I mean, obviously, there's just the headline number, right? If you're reducing those tariffs, that's...

significantly for the next 90 days. I mean, it does indicate that maybe relations are improving. Obviously, it's only temporary, but I think that does indicate that there's a step in the right direction. It certainly isn't, I mean, removing the 125, 145% tariffs that we saw in China. That's a pretty good victory for China. So yeah, I think we have to see where things go from here. But the fact that the progress has even gotten to this point, I think that's pretty promising.

How much could this bring relief for the Chinese economy, Jill? Because we've been seeing early signs of the effects the tariffs had already been having, or at least the uncertainty over the tariffs had been having on things like trade flows. Yeah, I mean, I think that, you know, when you're looking at...

at exactly what this means for the Chinese economy and taking a look at some of the Bloomberg economics data that we've been really putting out. I mean, just the fact that the shock on how much this is meaning for US imports is going down significantly. I think that that's a really, really big improvement. I'm talking actually right now with some of our reporters who have been reaching out to Chinese exporters who are at

elated at this news so far. I mean, we were just talking to somebody who has a Timu store selling sort of face and body painting tools, saying that their entire office was shouting hooray. That particular Chinese exporter, I mean, that's somebody that had a stockpile of about five months supply in a US warehouse, just kind of waiting to see what was ultimately going to happen in this trade war. What that person was telling us

just a few minutes ago, is essentially that they're elated because they were actually expecting this to drag on for quite a bit longer. And the fact that you already have this reprieve, not too long, about a month and some change after these tariffs really went into effect,

That's actually been really promising for them. So at least from the Chinese exporter side, I mean, people that are doing direct business with American consumers that are really, really dependent on these types of trade flows. We're already seeing a lot of encouragement there. Again, I do have to stress, obviously, these tariffs, this reprieve, these cuts are only in place for 90 days. But again, the trajectory is certainly very positive, or at least the sentiment here is that this has been very positive.

Well, Jill, some of those exporters out of China had already moved trade to other countries in Asia, worried about the tariff war. We saw that in the data on Friday. Do you think we now just hit undo on that?

Well, Lizzie, I think obviously a bit too early to say there because ultimately, I mean, if you're some of these exporters, sure, you do have those ones that are very elated by this and we're really banking on that business. But you also have a lot of people that at the end of the day, there's still a lot of uncertainty here, right? I mean, let's just park it and rewind to where we were about a month or two months ago. I mean, you had not just these tariffs on China, but also these reciprocal tariffs that

countries all over the world are facing. And there was a lot of confusion over what exactly that would ultimately mean for how the United States is doing trade and business with countries worldwide. I mean, we saw during the first Trump administration, a lot of different companies that were already starting to diversify away from China, trying to put the rigs in different baskets in Southeast Asia. Some of those guys got burned just a month or so ago when we saw

really high tariffs on Vietnam and others. Obviously, some of those have currently been paused. But I think that's a long way of saying that there's still a lot of uncertainty in this environment. Obviously, the cuts that we've seen so far, while dramatic, still only in place for 90 days. So I can imagine that if you're an exporter, if you're considering where exactly

you're sort of setting up shop and how you want to do business with the United States. It's still a bit of an uncertain environment until you have something that actually does feel like a definitive deal. Jill, another note of caution, perhaps, too, from these comments from Scott Besant about the five or six strategic industries where the U.S. is going to seek supply chain independence and this, quote, strategic rebalancing that he's promising. Is that to suggest that there'll still be significant bones of contention in the trading relationship between the U.S. and China?

Yeah, Stephen, I think, you know, we were talking about this earlier. It's interesting, I think, particularly when you had Scott Besson call out industries such as pharmaceuticals and steel, saying that the U.S. was going to seek supply chain independence in these types of fields. I mean, you know, to go back

of just a few months ago to the Biden administration, obviously you saw a tremendous focus from the United States on ensuring independence and the strategy toward focusing on semiconductors and advanced technology and chips. The fact that the United States now appears to be sort of broadening out the areas in which it's really sort of pursuing supply chain independence, I think is a pretty significant development. Obviously, we don't know exactly when it

went on behind closed doors in Geneva this weekend. But that does indicate that, obviously, the United States' position on trade protectionism, this idea of that supply chain independence certainly seems to be strengthening. So I think it's definitely something we have to look out for. Again, I think at the end of the day,

While markets are obviously taking things as incredibly positive from this weekend, you still have a reprieve that's really only in place for the next 90 days. You still have various areas that the United States says that needs to negotiate on. I still think we're quite a ways from being able to sit here and call this saga over. It's certainly going to continue over the next few months at least.

This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hepker. And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak Europe.

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