Global markets feel relief after trade tensions between Washington and Beijing ease
- US stocks jump after surprise tariff reduction between Washington and Beijing
US markets rose significantly on Monday, driven by a surprise easing of trade tensions between the United States and China, following moves led by senior trade officials in President Donald Trump's administration over the weekend. The agreement included a significant reduction in tariffs, boosting market optimism and raising hopes that the US economy could avoid a recession.
The Dow Jones Industrial Average closed up 1,161 points, or 2.81%. The S&P 500 also jumped 3.26%, while the tech-heavy Nasdaq Composite rose 4.35%. These gains represented the largest daily gain for the three indices in more than a month.
"Today's sharp rise reflects the positive impact of unexpected news about tariff relief," Keith Lerner, chief market strategist at Truist Financial Advisors, said in a note on Monday.
"Many investors were unprepared for such an outcome, which led to a strong buying spree that pushed the market higher."
The Nasdaq, which had been in a bear market since April 4, has surged more than 20% from its year-to-date lows, exiting the bear market and entering a new phase known as a bull market—a term used when the index rises 20% or more from its recent lows.
Despite this rebound, the Nasdaq is still down about 3.1% year-to-date, indicating that some challenges remain in the market despite the recent positive momentum.
Wall Street celebrates US-China trade breakthrough
US stocks recover losses after Trump rolls back 'Liberation Day' tariffs and positive developments with China
US stocks recovered all losses on Monday after President Donald Trump announced his trade decisions on April 2, which he described as "Liberation Day." These included imposing a 10% tariff on most imports into the United States, in addition to much higher tariffs on imports from dozens of countries.
Although Trump suspended most of these tariffs a few days after they took effect, he gradually raised taxes on Chinese imports, reaching 145% on most Chinese goods.
In retaliation, China imposed 125% tariffs on US goods, bringing trade between the world's two largest economies to a near-standstill. This tit-for-tat trade war has raised fears of significant price increases in US markets and potential shortages of some essential goods.
In recent weeks, Trump and Treasury Secretary Scott Besant have stated that the escalation of tariffs on China has reached "unsustainable" levels, emphasizing the need for a breakthrough.
Although many observers did not expect significant results from the talks in Geneva between Besant, US Trade Representative Jameson Greer, and their Chinese counterparts, the weekend brought a surprise: a genuine breakthrough in trade relations, resulting in significant tariff reductions on both sides and sparking a wave of optimism in the markets.
Significant Tariff Reductions and a Mechanism to Prevent Future Escalation
The United States and China reached an agreement to reduce mutual tariffs by 115 percentage points. While the new rates are still significantly higher than they were before President Donald Trump took office in January, they are significantly lower than the record levels reached last month, which sparked widespread concern among American businesses, consumers, economists, and investors alike.
Jeff Buchbinder, senior equity strategist at LPL Financial, described this surprising progress in an email:
"No one expected these low tariff rates on China. It's a very welcome surprise."
One of the most significant elements of the agreement was the establishment of a mechanism to prevent future escalation. US Treasury Secretary Scott Bessent explained that the two sides agreed to establish a joint framework aimed at avoiding any future tariff increases, a move that reflects both sides' intention to turn the page on trade escalation.
These developments are seen as a strong signal that the worst of the trade war may be behind us, bolstering confidence in the stability of economic relations between Washington and Beijing in the near future.
Tough Time for Trade War: US and Chinese Economies Under Pressure
In remarks Monday morning, US Treasury Secretary Scott Besant described the efforts to de-escalate the trade war with China, which he participated in negotiations this week in Geneva, as "difficult but respectful."
In an interview with CNBC from Geneva, Besant said:
"We were resolute, and we moved forward. We tried to identify common interests. We came up with a list of problems we were trying to solve, and I think we succeeded."
Besant noted that the United States was negotiating from a position of strength, noting that the Chinese economy is facing increasing pressures that make it more dependent on US markets than Washington is on Beijing's exports. He explained that China is experiencing a severe economic crisis, including a collapse in the housing sector, mounting debt, and a decline in consumer spending and factory production.
"I've seen what's happening in the Chinese economy. We can see the decline in shipments to the United States," Bessent said, adding, "We're a country with a trade deficit. Historically, a deficit is a negotiating advantage in these types of disputes."
Despite Bessent's optimism, the reality is that no one emerges victorious from a trade war. In the United States, consumer confidence has plummeted in recent months amid growing concerns about inflation and commodity shortages. Shipments from China to American markets have virtually ground to a halt, worrying local businesses and suppliers.
Investors were already preparing for a potential recession, with economists repeatedly warning of the widespread damage that could be inflicted on the US economy if the trade dispute with China continues.
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