US Treasury Secretary Scott Bessent said both countries would lower their reciprocal tariffs by 115% for 90 days.
The announcement came after the two countries held talks in Switzerland, the first between the two countries since US President Donald Trump had levied steep tariffs on Chinese imports last month.
Shares jumped on news of the deal. Last month, the imposition of the tariffs had caused turmoil in financial markets and sparked fears of a global recession.
The trade war between China and the US intensified last month after President Trump announced a universal baseline tariff on all imports to the US, on what he called "Liberation Day".
Around 60 trading partners, which the White House described as the "worst offenders", were subjected to higher rates than others, and this included China.
China retaliated with tariffs of its own, and this ratcheting up of levies ultimately led to the US imposing a 145% tariff on Chinese imports, while Beijing had a 125% levy on some US goods.
Under the new agreement, the US and China have both suspended all but 10% of their Liberation Day tariffs for 90 days and cancelled other retaliatory tariffs.
This will cut US tariffs on Chinese imports to 30%, while Chinese tariffs on US imports will be cut to 10%. The pause will begin on 14 May.
The US measures still include an extra 20% component aimed at putting pressure on Beijing to do more to curb the illegal trade in fentanyl, a powerful opioid drug.
The huge tariffs imposed had raised the prospect of trade between the two countries slumping, with US ports reporting a sharp drop in the number of ships scheduled to arrive from China.
Meanwhile Beijing has become increasingly concerned about the impact the tariffs could have on its economy. Factory output has already slowed and there are reports some firms were having to lay off workers as production lines of goods bound for the US began to grind to a halt.
