The recent agreement between the United States and China has temporarily eased global economic concerns, as the two countries, being the world's largest economies, were embroiled in escalating trade tensions.

The trade war, which saw U.S. tariffs on Chinese imports spike as high as 145%, created significant uncertainty in global markets, affecting trade freedom, currency exchange rates, and investment flows.

In early May, formal negotiations commenced in Geneva between a U.S. delegation led by Treasury Secretary Steven Mnuchin and a Chinese team headed by State Councilor He Lifeng.

Both sides sought to de-escalate tensions and establish solutions regarding trade barriers impacting their bilateral trade.

Ahead of these discussions, President Donald Trump suggested a reduction of tariffs on Chinese goods by up to 80%, a significant cut though still leaving high tariffs in place.

On May 14, both governments announced a temporary agreement, marking a notable shift in their trade dynamics.

This deal includes a 90-day suspension of most existing tariffs, allowing for additional negotiations to proceed without the immediate pressure of escalating duties.

Under the terms of the agreement, U.S. tariffs on China would drop from 145% to 30%, with core tariffs seeing a reduction from 125% to 10%, while a 20% tariff imposed for alleged roles in fentanyl trafficking would remain.

Conversely, Beijing agreed to lower retaliatory tariffs on American goods from 125% to 10%.

The breakthrough in Geneva appeared to result from mutual concessions made by both countries, with President Trump expressing satisfaction with the development and commending his Chinese counterpart.

In remarks made aboard Air Force One, Trump stated that a strong framework for the agreement had been established and emphasized the importance of Chinese openness as part of the deal.

The immediate impact of the agreement was felt in global financial markets, with Asian industrial stocks experiencing a surge.

The Hang Seng Index in Hong Kong rose by 5.2%, marking its largest gain in two months.

The U.S. dollar noted its best daily performance in over a month, and the Taiwanese dollar increased by more than 8% against the U.S. dollar, along with other Asian currencies following suit.

Investor sentiment significantly shifted towards optimism surrounding the potential for an enduring U.S.-China reconciliation, alleviating fears of further deteriorating relations.

This sentiment resonated throughout regions heavily reliant on exporting goods, including Taiwan's semiconductor manufacturers, South Korea's electronics exporters, and automotive and machinery producers in Japan.

The agreement also triggered renewed activity in the banking sector across Asia, particularly in countries with strong export-oriented economies.

Financial institutions are likely to resume halted investment and expansion programs as prospects of a more stable U.S.-China trade relationship emerge, reflecting a consensus that both nations prefer not to completely sever their trade ties at this juncture, with future negotiations expected to yield further positive resolutions.