New York
CNN
—
US stock futures surged after President Donald Trump’s top trade officials brokered a surprisingly dramatic de-escalation in trade tensions with China over the weekend, dropping tariffs to much lower levels, which some economists say could stave off a US recession.
Dow futures rose 1,000 points, or 2.4%. S&P 500 futures were 3.1% higher, and Nasdaq futures gained 4%.
US stocks were set to erase all their losses since Trump’s April 2 “Liberation Day” trade announcement, which placed a 10% tariff on practically all goods coming into the United States and set significantly higher tariffs on dozens of countries. Trump paused most of those tariffs just days after they went into effect but jacked up import taxes on China – eventually to 145% on most Chinese imports.
In turn, China hiked tariffs on US goods to 125%. The tit-for-tat trade war had effectively stopped trade between the two countries, risking substantial price hikes and shortages.
Trump and Treasury Secretary Scott Bessent both had said in recent weeks that tariffs on China had grown unsustainably high and a détente was necessary. But few believed that the result of the discussions between Bessent, US Trade Representative Jamieson Greer and their Chinese counterparts in Geneva this weekend was going to be quite so significant.
Both sides agreed to axe tariffs by 115 percentage points, still leaving the levies considerably higher than where they were before Trump took office in January – but much, much lower than the historic level over the past month that deeply concerned American businesses, consumers, economists and investors.
Another key element of the discussions: Bessent said the US and China had put in place a mechanism to avoid raising tariffs on each other again, suggesting that the worst of the trade war may be behind us.
“There are still lots of factors pointing away from a (global) recession, and this morning’s news of lower US-China tariffs adds to that evidence,” Henry Allen, a strategist at Deutsche Bank, said in a note to investors Monday morning. “The market’s resilience itself is making a recession less likely by easing financial conditions. And policymakers don’t want a downturn or market turmoil either, as we saw with the 90-day extension to the reciprocal tariffs.”
As a result, Wall Street cheered Monday morning. Investors showed greater appetite for riskier assets, including stocks. The US dollar rose 1% against a basket of currencies. US oil, which had tumbled as investors feared a demand vacuum because of a tariff-induced global recession, surged 3.5% to $63 a barrel. Brent crude, the international benchmark, rose 3.3% to $66 a barrel.
By contrast, investors sold off save-haven assets, such as gold, which tumbled 3.9%. US Treasuries also fell, sending the 10-year yield back above 4.45%. Bond prices and yields trade in opposite directions. Japan’s yen fell 1.5%.
Tech stocks were particular winners: Despite a recent US carveout for hardware from tariffs on China, tech had been rocked in particular by the trade war between the US and China, because of the deeply intertwined relationship between American and Chinese technology sectors. Apple (AAPL) gained 7%, Tesla (TSLA) rose 7.7%, Nvidia (NVDA) was up 5.1%, Amazon (AMZN) rose 8% and Intel (INTC) was up 4.1% Monday morning.
Stocks of luxury goods makers, which had tumbled in recent months, bounced back sharply: Hermes rose 4%, Burberry was up 6% and LVMH surged 7%.
A bad time for a trade war
US Treasury Secretary Scott Bessent Monday morning characterized the trade war de-escalation that he helped negotiate this weekend with his Chinese counterparts as tough but respectful.
“We were firm, and we moved forward,” Bessent told CNBC from Geneva. “We tried to identify shared interest. We came with a list of problems that we were trying to solve, and I think we did a good job on that.”
Bessent noted that America was negotiating from a position of strength because China needs the United States to buy its products more than the US relies on China for its goods exports. China’s economy is on the ropes, amid a housing crisis and an emerging debt crisis. Consumer spending has fallen, as has factory output. This is a bad time for China to be dealing with a crippling trade war.
“I had seen what’s going on in the Chinese economy. We can see what’s going on with the shipments to the US,” Bessent said. “Again, we are the (trade) deficit country.
Historically, the deficit is a country has a better negotiating position.”
But, as the saying goes, no one wins in a trade war. US consumer sentiment fell off a cliff in recent months as inflation-weary Americans grew anxious about the prospect of rising prices and shortages. Shipments to the US from China were all but halted, rattling corporate America. And investors had braced for a recession, as economists said the US economy could get hit particularly hard by the trade war.
The detente, though welcome by Wall Street, consumers and businesses, represents a remarkable shift for a Trump administration that only days ago had said the trade standoff with China was necessary to restore America’s lost manufacturing prowess. Trump had said last week that zero trade with China put America in a stronger position, because that meant it was no longer “losing money” to the Chinese.
Bessent said the deal didn’t represent a major policy shift, however.
“This is just a pause,” he said. “The April 2 tariff level for China was 34%, so we have moved that down from 34% to 10%.”
As the next step in negotiating, the US will focus on expanding its supply chains for what Bessent called “strategic necessities,” reducing its reliance on China for things like critical medicines, semiconductor chips and steel.
“What we do want is a decoupling for strategic necessities, which we were unable to obtain during Covid,” he said. “And we realized that efficient supply chains were not resilient supply chains. So, we are going to create our own.”
He also said the US would seek a fairer approach to international business. Bessent said the Trump administration wants to break down “insidious, non-tariff trade barriers that hurt American companies trying to do business” in other countries.