China and the United States issued a joint statement announcing a temporary reduction in tariffs. The United States will reduce tariffs on mainland Chinese goods from 145% to 30% within 90 days, while mainland China will simultaneously reduce tariffs on U.S. imports from 125% to 10%.

Stuart Rumble, investment director for Asia Pacific at Fidelity International, said the news triggered a positive reaction in the stock market, with the mainland and Hong Kong stock markets moving in the positive direction. This short-term relief is an encouraging signal to the market and will help restore market confidence.

Although the overall tariff reduction is large, the reduction time is limited. However, market sentiment and local support policies may be more important than the actual content of the agreement. Investors can take several lessons from this statement.

First, although the reduction is temporary, it reflects a significant shift in the overall effective tariff burden. The high tariff regime between China and the United States has caused significant damage, reducing bilateral trade between the two largest economies and increasing the risk of a general slowdown in the global economy.

Although neither economy is yet on the brink of collapse, a significant reduction in overall tariffs would help mitigate this risk. The U.S. government is likely to continue to support demand by extending tax cuts and other fiscal measures aimed at supporting household spending.

China has worked for years to reduce its reliance on U.S. exports and prepare for a new round of trade tensions while retaining the ability to expand domestic stimulus measures. These developments, combined with lower trade barriers, should be supportive for equity and credit markets.

Second, even if tariffs are cut, global trade flows are already shifting. The decline in direct trade between China and the United States has led to more and more trade being diverted through Southeast Asia and other so-called third countries.

Tariff differences remain and will continue to shape trade flows based on relative competitiveness, infrastructure capabilities, and national policy responses. Structural shifts such as companies need time to adjust to their supply chains and logistics are important for investors considering allocating capital in Asia.

Ultimately, while this development is encouraging, investors should probably view it as part of a thawing of broader, long-standing tensions between the U.S. and China, and a shift toward greater self-sufficiency.