The Geneva Truce
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Article Type
Insights
Topic
Macro
Published
May 21, 2025
Read time
5 mins
Authors
Jordy Hermanns, CFA
Jacob Vijverberg, CFA
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After a two-day meeting in Geneva, the US and China have reached an agreement to substantially lower tariffs on each other for 90 days. In this de-escalating move, the US tariff on Chinese goods are (temporarily) lowered from 145% to 30%. China's tariff on US goods is lowered from 125% to 10%, matching US's reciprocal tariff rate. This “Geneva Truce” provides a window for both countries to work toward a broader and more permanent agreement. Also, this is a better outcome than was anticipated, with a positive tone of voice from the US and Chinese representatives, a swiftly negotiated deal, and (temporarily) substantially lower tariffs. 

 

Source: Aegon AM, U.S. International Trade Commission, Aegon Asset Management  (As of May 2025). 

 

Geneva Truce Boosts Market Rally 

Markets have welcomed the temporary tariff relief. Risk assets moved higher and safe haven assets, such as government bonds and gold, sold off. The USD appreciated versus most currencies. With this Geneva Rally most assets have recovered the “Liberation Day” losses and most risk premiums have returned to pre-April levels.

 

Relief: Yes! But not without some scars

Although the deal is not permanent, this de-escalation is interpreted as a sign that the US is open to negotiate a trade deal with China and other trading partners. Overall, it seems that the macro situation is caught between strong hard data (mostly backward looking and supported by frontloading), juxtaposed against weak soft data (forward looking). At the same time, the current trade resolution offers some relief, but uncertainty prolongs and the global trade situation is worse than it was at the start of the year. From a more structural perspective, there are longer-lasting implications. The geopolitical storm unleased by Trump has set changes in motion. That genie is out of the bottle, and one trade deal does not change that. The (unpredictable) flip-flop policies by the Trump government have adverse economic effects and negative long term implications. We argue that markets are very short term focused, and are ignoring the longer-term issues. We took a cautious tactical positioning before Liberation Day. A lot has happened since, but we continue to prefer this overall cautious positioning. We believe the risk premiums – especially after today’s Geneva Rally – are not sufficient in today’s uncertain macroeconomic environment.

 

Impact on Europe

The deal between the US and China is important for Europe too. It shows that a deal between Europe and the US is possible. Also, this truce lowers the risk of an immediate (global) recession. Earlier we summarized the impact of the US-China trade war on Europe. We expect lower inflation in the Eurozone, driven by lower wage growth dynamics, a deflationary effect in the Eurozone due to (now less pronounced) trade rerouting, lower commodity prices and currency effects. 

Important information

Authors

Jordy Hermanns, CFA
Portfolio Manager

Jordy Hermanns, CFA, is a portfolio manager in the multi-asset group and serves as an investment strategist in the asset allocation team.

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Jacob Vijverberg, CFA
Head of Asset Allocation

Jacob Vijverberg, CFA, is head of asset allocation. He is responsible for both strategic and tactical asset allocation. The team is managing a wide range of multi-asset funds  

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