US stocks rose on Monday following President Donald Trump’s top trade negotiators brokering a massively unexpected easing of trade tensions with China over the weekend, cutting tariffs to dramatically reduced levels, which some economists believe could prevent a US recession.
The Dow increased over 1,000 points, or 2.5%. The more general S&P 500 was up 2.85%, and the Nasdaq Composite, which is heavy in technology stocks, climbed 4%.
United States equities were set to erase all losses since President Trump’s April 2 trade declaration, which he had referred to as “Liberation Day.”
The declaration was a 10% tariff on almost all United States imports and a much more significant tariff for many countries.
Trump later abolished most of the tariffs just days after they entered into force, but he later raised import duties on China to at least reach 145% on most imports from China.
dow soars 1000 points after trump team and china dramatically lower tariffs
Consequently, China increased tariffs on United States goods to 125%. The reciprocal trade conflict had effectively halted trade between the two nations, thereby posing a significant risk of substantial price increases and shortages.
Both parties agreed to reduce tariffs by 115 percentage points, yet leaving the tariffs considerably higher than when Trump was sworn in in January – but far, far lower than the record high last month that scared American businesses, consumers, economists and investors.
Another of the major points of the negotiations: Bessent continued that the US and China had established a mechanism to prevent the escalation of tariffs on one another again, indicating the worst of the trade war could be over.
Henry Allen, a Deutsche Bank strategist, said in a morning note to clients, “There are many reasons still why a (global) recession is unlikely, and this morning’s news of lower US-China tariffs further supports the above statement.”
He added, “The market resilience is adding to the reduced probability of a recession by easing financial conditions.
Furthermore, policymakers are also not keen on a downtick or market disruption, as seen in the recent 90-day extension of tit-for-tat tariffs.”.
On the other hand, investors dropped save-haven assets, like gold, that declined 2.5%. US Treasuries declined too, pushing the 10-year yield over 4.45% once again. Bond yields and prices have an inverse relationship. Japan’s yen declined 1.5%.
The Wall Street fear index, the CBOE Volatility Index, declined 10% to its lowest level since March closed. “Greed” was the dominant sentiment in markets, per CNN’s Fear and Greed index.
Tech stocks were especially big gainers: Despite a recent US carveout of hardware from US tariffs on China, tech had been rattled exactly by the US-China trade war, thanks to the extremely interdependent nature of American and Chinese tech sectors. Apple (AAPL) gained 7%, Tesla (TSLA) gained 7.7%, Nvidia (NVDA) gained 5.1%, Amazon (AMZN) gained 8% and Intel (INTC) gained 4.1% Monday morning.
As a result, Wall Street was in high spirits on Monday morning. Investors were more inclined to take on riskier assets, namely equities.
The US dollar rose by 1.2% against a basket of currencies. US oil, which had fallen on fears of a shortage of demand due to a tariff-induced global recession, rose by 3.4% to $63 a barrel. Brent crude, the global standard, rose by 3.2% to $66 a barrel.
Trump and Treasury Secretary Scott Bessent both recently declared that the tariffs on China had become unsustainable and that détente was in order.
Not many, however, anticipated the result of talks between Bessent, US Trade Representative Jamieson Greer, and their Chinese negotiators this weekend in Geneva to be particularly significant.
dow soars 1000 points after trump team and china dramatically lower tariffs
The shares of makers of luxury items, which had been lower in recent months, reversed trend sharply: Hermes rose 4%, Burberry 6%, and LVMH 7%.
Auto manufacturers also jumped: Jeep and Chrysler manufacturer Stellantis (STLA) rose 9%, General Motors (GM) grew 4% and Ford (F) gained 2%.
A bad time for a trade war.
Monday morning, U.S. Treasury Secretary Scott Bessent described the de-escalation of the trade war he helped negotiate over the weekend with Chinese officials as hard but diplomatic.
Bessent further contributed that America was negotiating from strength because China needs the United States to buy its goods more than the United States needs China to buy its exports of goods. The Chinese economy is in a weak state, with a housing crisis and a building debt crisis. In addition, consumer spending has declined, accompanied by a decline in factory output. Hence, this is not the time for China to be struggling with a crippling trade war.
I have seen the state of the Chinese economy today. In addition, one can see trends in exports to the United States,” said Bessent. “Again, we are the nation with a trade deficit.”
Historically, the deficit is a country has a better negotiating position.”
But, as the saying goes, no party wins a trade war. The past few months have seen US consumer confidence plummet, as Americans, fatigued by inflation, have grown more and more fearful of the possibility of rising prices and shortages. In addition, Chinese shipments to the US were effectively halted, leading to widespread concern among American businesses. In addition, investors have braced for a recession, with economists claiming that the US economy would be especially negatively impacted by the trade war.
We were firm in our actions, and we went on,” Bessent told CNBC in Geneva. “We tried to identify areas of common interest. We came with a list of things that we wanted to discuss, and I think we did a good job of that.”.
The detente, while welcomed by Wall Street, consumers, and businesses, is a major departure for the Trump administration, which just days before had argued the trade standoff with China was necessary to restore America’s lost manufacturing capacity. Trump last week explained that the absence of trade with China placed America in a better position because it meant the country was no longer “losing money” to the Chinese.
Bessent explained that the agreement was no significant policy change, though.
This is just a brief halt,” he said. “The tariff level against China on April 2 was 34%, and since then, we’ve cut it from 34% to 10%.”.
In the following round of negotiations, the United States will be engaging in supply chain diversification for what Bessent termed “strategic necessities,” hence reducing reliance on China for strategic materials like critical medicines, semiconductor chips, and steel.
“What we are looking for is a decoupling for strategic needs, which we did not succeed in doing in the Covid pandemic,” he said. “Besides, we learned that good supply chains did not equal resilient supply chains. So, we are resolved to establish our own.”
He also claimed that the United States would pursue a more even-handed approach towards global business. Bessent said that the Trump administration intends to eliminate “insidious, non-tariff trade barriers that harm American businesses trying to do business” abroad.
A “historic fresh start.”
The de-escalation of the trade war with China is a huge victory for the US economy and US consumers, United States National Economic Council Director Kevin Hassett told CNN’s Kate Bolduan on Monday.
Hassett noted that Trump had secured major concessions from China and the United Kingdom in their newly released proposals for trade talks, specifically by opening the British market to US beef and possibly relaxing some of the restrictions that China had placed on American firms that sought to do business there. In addition, Hassett believed that the deal that was struck over the weekend would reduce the chances of future supply shocks from China.
A big part of that has been addressed now — the risk of supply disruptions from China,” said Hassett. “I think this represents a genuinely historic new beginning in the relationship between the United States and China.
However, as Hassett explains, the developments do not represent a departure from the previous policy of Trump.
dow soars 1000 points after trump team and china dramatically lower tariffs
The bottom line is what President Trump was communicating is that if we don’t get that good deal to work, we’ll be okay,” Hassett said.
“The truth is that we didn’t sell nearly anything to China. We’re purchasing a lot of items from China. We could purchase that material elsewhere, or we could make it ourselves.”.