Adds context, reactions throughout

By Andrea Shalal, Emma Farge and Olivia Le Poidevin

WASHINGTON, May 12 (Reuters) - Global stock markets surged on Monday after the U.S. and China agreed to slash their steep tariffs on each other for at least 90 days, tapping the brakes on a trade war between the world's two biggest economies that had fed fears of a global recession.

But the temporary pause did little to address the underlying schisms that led to the dispute, including the U.S. trade deficit with China and U.S. President Donald Trump's contention that Beijing has not done enough to address the U.S. fentanyl crisis.

While investors cheered the move, businesses were more hesitant, welcoming the relief but seeking more clarity.

Trump and his allies portrayed Monday's agreement as proof that his aggressive tariff strategy was paying dividends, after the U.S. struck preliminary pacts with Britain last week, and now China. The jury is still out on whether the deep underlying trade imbalances that have hollowed out U.S. manufacturing will be addressed.

Even U.S. Treasury Secretary Scott Bessent, who hammered out Monday's agreement with Chinese counterparts in weekend talks in Geneva, has acknowledged that it will take years to reset Washington's trade relationship with Beijing.

Under the temporary truce, the U.S. will cut extra tariffs it imposed on Chinese imports last month from 145% to 30% for the next three months, the two sides said, while Chinese duties on U.S. imports will fall to 10% from 125%.

Financial markets cheered the reprieve in a conflict that had brought nearly $600 billion in two-way trade to a standstill, disrupting supply chains and triggering layoffs. Investors had also worried about stagflation, a toxic combination of high inflation and weak economic growth.

Wall Street stocks jumped and the dollar rose, while safe-haven gold prices fell as the news eased - but did not erase - investor concerns that Trump's trade war could crater the global economy.

Trump campaigned in 2024 on addressing unfair trade practices and resurrecting U.S. manufacturing capacity that had gone overseas, securing support among blue-collar workers in "Rust Belt" states like Michigan and Pennsylvania that have lost manufacturing jobs for decades.

But Trump's tariff policy also drew fire from a range of groups. Small businesses and truckers were girding for major repercussions from the China tariffs, while American consumers worried about rising costs.

"The president is doing what he said he would. This is absolutely about resolving disparities in the trading relationship," said Kelly Ann Shaw, an attorney with Akin Gump Strauss Hauer & Feld who worked as a key trade adviser during Trump's 2017-2021 term.

She cautioned that 90 days was not much time to address major U.S. concerns over non-tariff barriers such as subsidies for capital and labor.

"They've got their work cut out for them."

ON-AND-OFF APPROACH

Seeking to reduce the U.S. trade deficit, Trump targeted countries worldwide with an array of tariffs and especially aggressive levies on China, which he blames for exacerbating the U.S. fentanyl crisis.

Stocks cratered in response, and last month Trump quickly paused most of his "reciprocal" tariffs on dozens of countries, except China.

Trump's on-and-off approach has rattled investors and weakened his approval ratings among U.S. voters worried tariffs will lift prices on everything from toys to cars.

The remaining U.S. tariffs on Chinese imports are still stacked atop prior duties. Even before Trump took office in January, China was saddled with 25% U.S. tariffs he had imposed on many industrial goods during his first term, with lower rates on some consumer goods.

Monday's announcement leaves these duties unchanged, along with tariffs of 100% on electric vehicles and 50% on solar products imposed by former Democratic President Joe Biden.

Retailers may take a wait-and-see approach to 30% tariffs that would drive up prices for shoppers, said Gene Seroka, executive director of the Port of Los Angeles, the nation's busiest and the No. 1 ocean entry point for imports from China.

Monday's accord also does not include the "de minimis" exemptions for low-value e-commerce shipments from China and Hong Kong, which the Trump administration terminated on May 2, according to a source familiar with the negotiations.

However, the tariff cut went further than many analysts had expected following weeks of confrontational rhetoric. Last week, Trump floated a much higher rate of 80%.

"This is better than I expected. I thought tariffs would be cut to somewhere around 50%," said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong.

Shipping industry representatives said many companies may restart loadings of goods to get shipments in while tariffs were still low, but the uncertainty around any eventual deal may leave businesses wary of ramping up orders dramatically.

Mike Abt, co-president of family-owned Abt Electronics in Chicago, said the company is working down inventories squirreled away before tariffs went live.

"Everyone wants consistency, and that's been the hard part of this whole thing," he said. "It's so fluid. It's like a game of Risk, you really don't know what the right answer is."

'THE EQUIVALENT OF AN EMBARGO'

Within the administration, the truce marked a victory for Bessent, a former hedge fund executive, who had also advocated for the earlier 90-day pause in the global reciprocal tariffs to allow time for negotiation.

"The consensus from both delegations this weekend is neither side wants a decoupling," Bessent said after the talks in Geneva. "We want more balanced trade, and I think that both sides are committed to achieving that."

The meetings were the first face-to-face interactions between senior U.S. and Chinese economic officials since Trump returned to power.

China's vice premier, He Lifeng, told reporters at China's mission to the World Trade Organization on Sunday that the talks were "candid, in-depth and constructive."

"The meeting achieved substantial progress and reached important consensus," He said.

Andrew Gossage, CEO of Ultimate Products, which owns homeware and appliance brands that sell China-manufactured products mainly to the UK and Europe, said Chinese manufacturers will still prioritize European customers.

"The U.S. has definitely gone into unreliable boyfriend territory when it comes to the attitude of the Chinese manufacturers to that market," he said.

Bessent told U.S. media that the next meeting had not yet been set but that the sides were ready to continue negotiating. He said Chinese officials had understood the importance of addressing the fentanyl crisis and working to halt the flow of precursor drugs into the U.S.

(Reporting by Emma Farge, Olivia Le Poidevin in Geneva, Andrea Shalal in Washington and David Lawder in Chicago; Additional reporting by Andrew Silver in Shanghai, Lisa Barrington in Seoul, Helen Reid in London, Lisa Baertlein in Los Angeles and David Gaffen in New York; Writing by Dave Graham, Emelia Sithole-Matarise and Joseph Ax; Editing by Sharon Singleton and Ross Colvin)

((dave.graham@thomsonreuters.com; Reuters Messaging: dave.graham.thomsonreuters.com@reuters.net/))