US and China Reach Historic Tariff Reduction Agreement

How Did China and the US Reach a Tariff Reduction Agreement?

The economic landscape between China and the United States witnessed a significant shift following breakthrough negotiations at the Geneva economic and trade talks in May 2025. After years of US–China trade tensions that impacted global markets, both nations finally found common ground, signaling potential relief for industries worldwide, including the zinc market.

Recent Developments in China-US Trade Relations

The Geneva talks concluded on May 13, 2025, with both nations announcing concrete progress toward easing trade barriers. This diplomatic achievement represents more than just a political victory—it marks a potential turning point in relations between the world's two largest economies after years of escalating tariffs and trade uncertainties.

The negotiations, which had been ongoing for several months, focused on finding mutual benefits rather than continuing the confrontational approach that characterized previous trade discussions. Both sides demonstrated willingness to compromise, recognizing the economic advantages of reduced trade barriers.

"This agreement demonstrates that despite geopolitical differences, economic pragmatism can prevail when both parties recognize mutual benefits," noted an SMM analyst in their May 13 market commentary.

Key Elements of the Tariff Reduction Agreement

The agreement targets specific product categories that have been subject to heightened tariffs since the trade tensions began. While comprehensive details haven't been publicly disclosed, the framework includes:

• Phased implementation of tariff reductions across various industrial sectors
• Reciprocal concessions from both nations on key export categories
• Verification mechanisms to ensure compliance with agreed terms
• Industry-specific provisions affecting metals, agriculture, and technology

For the metals industry, the reduction in tariffs could significantly impact trade flows, potentially increasing the movement of zinc concentrates and refined products between the two countries. This comes at a particularly important time as both economies work to strengthen their industrial bases.

The timeline for implementation suggests a gradual reduction approach, allowing industries in both countries to adapt to the changing trade environment without sudden market disruptions. According to recent reports from the BBC, negotiators have established a framework that could reduce tariffs by up to 90% over the next three years.

What Impact Did the Agreement Have on Metal Markets?

The announcement of the tariff reduction agreement triggered immediate reactions across global metal markets, with zinc prices showing notable movement as traders assessed the implications for supply and demand dynamics.

Immediate Market Response to the Trade News

LME zinc prices gained $13.5/mt (0.51%) overnight following the announcement, closing at $2,669/mt. This positive movement was accompanied by increased market activity, with trading volume reaching 12,942 lots and open interest rising by 1,652 lots to 218,000 lots.

The technical picture on LME zinc charts revealed a long upper shadow bullish candlestick pattern, suggesting some profit-taking at higher levels despite the overall positive sentiment. The session high reached $2,717.5/mt before settling lower, with the 40-day moving average acting as technical resistance above current price levels.

This price action demonstrates cautious optimism among traders—welcoming the improved trade outlook while remaining mindful of existing market fundamentals. The inability to hold session highs indicates that while sentiment improved, participants weren't ready to abandon technical considerations.

Global Stock Market Reaction

The tariff agreement sparked a broad-based rally across major stock indices, reflecting improved investor confidence in the global economic outlook:

• S&P 500: Gained 0.8% following the announcement
• Shanghai Composite: Rose 1.2% in the session after the news
• Metals and Mining Sector ETFs: Outperformed broader indices with 1.5-2% gains

This synchronized market response highlights the interconnected nature of global financial markets and the significance of US-China trade relations as a barometer for economic health. The metals sector particularly benefited from the prospect of reduced trade friction, as manufacturing and construction industries stand to gain from more predictable supply chains.

"Market participants have been waiting for a catalyst to spur confidence in industrial metals, and this agreement may provide that foundation," noted market analysts in their coverage of the day's trading.

How Did Chinese and International Zinc Markets Diverge?

Despite the positive development in trade relations, an interesting divergence emerged between international and Chinese zinc markets, reflecting different underlying fundamentals and regional factors.

Shanghai Futures Exchange (SHFE) Zinc Performance

In contrast to the gains seen on the LME, the SHFE zinc 2506 contract closed down at 22,300 yuan/mt, representing a slight decrease of 25 yuan/mt (0.11%). The Chinese market showed decreased activity, with trading volume falling to 75,285 lots and open interest declining by 3,194 lots to 115,000 lots.

Technically, SHFE zinc formed a long upper shadow bearish candlestick pattern—mirroring the LME's formation but with bearish rather than bullish implications. The 5-day moving average provided support below current prices, preventing a deeper decline despite the negative sentiment.

This divergence between international and Chinese markets highlights how global trade news can be interpreted differently across regions based on local market conditions.

Factors Behind the SHFE-LME Divergence

Several key factors explain why Chinese zinc markets didn't mirror the optimism seen in international markets:

1. Increased social inventory levels from imported zinc ingot replenishment put pressure on domestic prices
2. Weakening fundamental support in the Chinese market, with industrial demand showing signs of moderation
3. More cautious trading sentiment among Chinese market participants, who focused on immediate inventory concerns rather than future trade benefits
4. Different market cycles between Chinese and international zinc markets

The divergence between SHFE and LME zinc prices underscores the complex interplay between global trade policies and regional market dynamics. While international traders responded positively to reduced trade tensions, Chinese market participants appeared more focused on near-term supply-demand imbalances affecting their domestic market.

"Chinese zinc traders have adopted a wait-and-see approach, prioritizing physical market fundamentals over potential future benefits from trade agreements," explained SMM in their market analysis on May 13, 2025.

What Are the Technical Indicators Showing for Zinc Markets?

Technical analysis provides valuable insights into market psychology and potential price direction, with LME and SHFE zinc charts telling different stories despite their interconnected nature.

LME Zinc Technical Analysis

The LME zinc chart displayed several key technical elements following the trade agreement announcement:

• Price movement: Trading between support at $2,644.5/mt and resistance at $2,717.5/mt
• Candlestick formation: Long upper shadow bullish candlestick indicating buying interest but also profit-taking at higher levels
• Moving averages: Price approaching but not breaking above the 40-day moving average (~$2,700/mt)
• Volume trends: Increased volume (12,942 lots) suggesting legitimate interest in the move higher
• Open interest: Rising open interest (+1,652 lots) indicating new positions rather than short covering

These technical indicators suggest improving sentiment but with caution. The rejection at higher prices shows that while traders welcome positive trade developments, they remain cognizant of broader market fundamentals and aren't rushing to establish aggressive long positions.

SHFE Zinc Technical Outlook

The technical picture for SHFE zinc offers a more cautious outlook:

• Support levels: 5-day moving average providing immediate support below 22,300 yuan/mt
• Resistance zones: Clear resistance at 22,655 yuan/mt (session high)
• Candlestick pattern: Long upper shadow bearish formation suggesting rejection of higher prices
• Volume analysis: Decreased trading volume (75,285 lots) indicating reduced participation
• Open interest dynamics: Falling open interest (-3,194 lots) suggesting position liquidation

The contrast between LME and SHFE technical indicators highlights the different perspectives of international versus Chinese traders. While both markets experienced similar intraday volatility with long upper shadows, the underlying bias differed, with LME zinc maintaining a bullish close while SHFE zinc drifted lower.

Comparative Performance:

How Are Zinc Fundamentals Evolving in 2025?

Beyond technical indicators, fundamental factors drive longer-term zinc price trends, with supply-demand dynamics and treatment charges offering crucial insights into market direction.

Current Supply-Demand Balance

The global zinc market in 2025 presents a complex picture with several key factors influencing the supply-demand balance:

• Mine production: Global output showing modest 2% year-over-year growth, with new projects in Australia and South America offsetting declining grades at mature operations
• Refined production: Smelter output constrained by environmental regulations in China and energy costs in Europe
• Consumption patterns: Automotive sector demand recovering while construction remains variable across regions
• Inventory levels: LME warehouse stocks declining 15% year-to-date while Chinese social inventories have increased recently

These fundamentals create a nuanced outlook where global supply appears adequate but not excessive, with potential for regional tightness depending on trade flows and smelter operating rates.

The recent China and the US reach agreement on tariff reductions could potentially shift these dynamics by allowing more efficient movement of zinc concentrates and refined metal between China and the United States, potentially easing regional imbalances.

Treatment Charges (TCs) Analysis

Treatment charges (TCs)—the fees miners pay smelters to process zinc concentrate into refined metal—provide valuable insights into the upstream supply chain:

• Recent trend: Zinc concentrate TCs growth rate slowed significantly in May 2025
• Current levels: Spot TCs around $250/mt, down from $280/mt in April 2025
• Market implications: Questions emerging about whether TCs are approaching peak levels
• Smelter economics: TC trends directly impact smelter profitability and operating decisions

The moderation in TC growth suggests the concentrate market may be tightening, potentially signaling changes ahead for refined zinc supply. This development bears watching as it could be an early indicator of shifting market fundamentals.

"The slowing growth rate of treatment charges could indicate we're approaching an inflection point in the zinc concentrate market cycle," noted SMM analysts in their May 2025 market assessment.

What's the Outlook for Zinc Markets Following the Trade Agreement?

The China-US tariff reduction agreement creates a new backdrop for zinc market participants to consider as they formulate trading and investment strategies for the remainder of 2025 and beyond.

Short-Term Price Projections

For the immediate trading horizon, several factors will likely influence zinc price direction:

• Technical resistance: LME zinc faces significant resistance at the 40-day moving average (~$2,700/mt)
• Technical support: Support exists at recent lows around $2,600/mt
• Sentiment driver: Improved US-China relations provide a positive backdrop but may not override near-term fundamentals
• Regional divergence: Expect continued differences between SHFE and LME price action based on inventory situations

These factors suggest a potential trading range of $2,600-2,750/mt for LME zinc in the coming weeks, with breakthrough above resistance dependent on broader economic indicators and physical market tightness.

For traders, this environment favors range-trading strategies with careful attention to technical levels and inventory reports as signals for potential breakouts.

Medium to Long-Term Market Considerations

Looking beyond the immediate horizon, several structural factors will shape the zinc market:

• Supply chain adjustments: Ongoing realignment of global zinc supply chains in response to changed trade policies
• Industrial policy impacts: Both US and Chinese industrial strategies emphasizing infrastructure and electrification support zinc demand
• Environmental regulations: Increasingly stringent emissions standards affecting both mining and smelting operations
• Energy transition: Growing demand for zinc in renewable energy applications (galvanizing for solar and wind structures)

These longer-term considerations point to a generally supportive environment for zinc, though with potential volatility as markets adjust to new trade patterns. The reduction in tariffs' impact on investments should improve market efficiency but won't eliminate fundamental supply-demand drivers.

Industry participants should monitor policy implementations closely, as the actual impact of the tariff reductions will depend on specific details and implementation timelines that haven't been fully disclosed. As reported by ABC News, implementation schedules vary by sector, with some tariff reductions happening immediately while others will be phased in over 24-36 months.

FAQ: China-US Trade Agreement and Zinc Markets

How does the China-US tariff reduction specifically affect zinc trade?

The agreement impacts zinc markets in several ways:

• Reduced costs for zinc products crossing borders between the world's two largest economies
• Improved trade flows potentially balancing regional supply-demand dynamics
• Enhanced predictability for manufacturers using zinc in production planning
• Potential increase in cross-border investment in zinc mining and refining

While specific tariff rates for zinc products weren't detailed in initial announcements, previous tariffs on unwrought zinc (HS code 7901) and zinc alloys will likely see phased reductions under the agreement.

What other metals have responded positively to the trade agreement?

Several base metals showed positive responses to the trade news:

• Copper: LME copper gained 0.7% to $8,450/mt
• Aluminum: Rose 0.9% to $2,180/mt
• Nickel: Increased 1.1% to $16,200/mt
• Lead: Up 0.4% to $2,050/mt

Zinc's 0.51% gain positioned it mid-range among base metals, reflecting its balanced fundamentals and the market's measured optimism about the trade agreement's impact on global industrial activity.

How might reduced trade tensions affect mining investment?

Reduced trade tensions could influence mining investment insights through:

• Enhanced confidence in long-term demand forecasts
• Reduced risk premiums for cross-border projects
• More stable pricing environment supporting investment decisions
• Improved access to international financing

Major mining companies have previously cited trade uncertainty as a factor delaying investment decisions, particularly for projects with 10+ year horizons where predictable market access is crucial for project economics.

Will this agreement lead to increased zinc consumption?

The trade agreement could support zinc consumption through several channels:

• Manufacturing growth: Reduced tariffs lowering costs for industries using galvanized steel
• Infrastructure development: Potential acceleration of projects previously delayed by trade uncertainties
• Automotive production: Support for global vehicle manufacturing supply chains
• Construction sector: Possible boost to building activity as economic confidence improves

However, consumption growth will depend on broader economic conditions, with interest rates and inflation remaining important factors alongside trade policy. The implementation of tariffs in the mining sector has historically influenced metal demand patterns significantly.

Key Data Points: Zinc Market Snapshot

The following table provides a comprehensive snapshot of current zinc market metrics across the LME and SHFE:

This market divergence between international and Chinese zinc markets highlights how regional factors can create different interpretations of global developments, offering both challenges and opportunities for traders navigating these connected but distinct marketplaces.

The China-US tariff reduction agreement represents a significant shift in the global trading landscape, with potential long-lasting implications for zinc and other metal markets. While the immediate market reaction has been measured, the structural improvements in trade relations could support a more efficient global zinc market as implementation proceeds through 2025 and beyond.

The copper market outlook has similarly been affected by these trade developments, with analysts identifying potential for improved cross-border flows of copper concentrates and cathodes.

Disclaimer: The analysis presented in this article is

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