The United States and China have agreed to a ceasefire to reduce import taxes on goods traded between the two countries.

The agreement marks a major downgrade in the trade war between the world’s two largest economies, which have caused shock waves that affect other countries, including the UK.

That's what it all means.

Both the United States and China have confirmed their mutually leveraged tariffs after President Donald Trump’s initial escalation earlier this year.

The deal involves two countries eliminating some tariffs altogether and suspending for 90 days by May 14.

As a result, the U.S. tariffs on Chinese imports will be reduced from 145% to 30%, while China's tariffs on US imports will be reduced from 125% to 10%.

China has also stopped and eliminated other non-tariff countermeasures, such as exporting key minerals to the United States and in response to the initial escalation.

The U.S. measure still includes an additional 20% element, aiming to put pressure on Beijing to curb the illicit trade in the powerful opioid fentanyl.

The news comes after talks between the two countries in Switzerland, the first since Trump sparked the latest tariff war.

In the past few months, it is hard to say the next step in the ongoing trade war between the United States and China.

But this is a major agreement between the world's two powerful economies and is widely welcomed.

Even if the tariffs are suspended after 90 days, the U.S. tariffs on China will only rise to 54% due to the cancellation of the vast majority of tariffs announced after the liberation date, while U.S. tariffs on the U.S. will rise to 34%.

However, negotiations between the two governments will continue, so further deals are likely to be reached.

U.S. Treasury Secretary Scott Bessent said the consensus between the two countries is that "both sides want to uncouple", while China's Commerce Department said the agreement is "a step to bridge differences and deepening cooperation."

So the relationship between the United States and China sounds more friendly, but as we have seen so far during President Trump, things may change soon.

In a word - a lot.

In 2024, the largest category exported from the United States to China is soybeans - mainly used to feed China's estimated 440 million pigs. The United States also sent medicines and oil.

At the same time, China exports a large number of electronics, computers and toys.

The largest category of imports from China by the United States is smartphones, accounting for 9% of the total. These smartphones are a large part of Apple iPhones made in China.

But the money purchased from the United States from China ($440 billion) is more than the one sold ($14.5 billion), which Trump has long been unhappy with.

His reasoning was partly to introduce tariffs, and to sell more countries in the United States, which was to encourage American consumers to buy more American-made goods, increase the amount of taxes and promote manufacturing efforts.

The escalating trade war has caused the collapse of the number of goods transported in the Pacific in recent months, but investors believe the armistice will lead to a rebound, with shares among some of the world's largest shipping companies.

Politicians on both sides have begun and will undoubtedly continue to claim victory over the truce.

Janka Oertel, director of the Asian Programs at the European Foreign Relations Commission, said that while the United States and China say it is a joint agreement, people in Beijing interpret it as a Trump administration backing from tariffs.

"We're back to the first one and now we can start negotiations. The results are uncertain, but China is now stronger than before," she said.

The United States will argue that its tariff rates on Chinese imports, although low, are still increasing at a rate of 30%.

"This trade deal is a victory for the United States and demonstrates President Trump's unparalleled expertise in ensuring a deal that benefits the American people," the White House statement said.

Deutsche Bank economists have suggested lowering tariffs and deals against them last week, meaning Trump's interest rates have both possible ceilings and floors."

George Saravelos, head of FX Research, investment bank, said: "The UK and the US are the most unbalanced, with the current general tariff rate of 10%. China is the most unbalanced, with the current tariff rate of 30%.

“It is reasonable for these two figures to set the boundaries of where U.S. tariffs will end this year.”