US-China Tariff Truce Sparks Stock Market Rally
Geneva, Wednesday, 14 May 2025.
A temporary agreement to reduce tariffs between the US and China has led to a significant stock market surge, reflecting investor optimism about a potential resolution to the trade war.
Market Reactions to the Tariff Truce
On May 12, 2025, the United States and China announced a significant easing of trade tensions by agreeing to a temporary reduction in tariffs. The US reduced its tariffs on Chinese imports from 145% to 30%, while China decreased its tariffs on US goods from 125% to 10%. This agreement is part of a 90-day truce aimed at creating a conducive environment for further trade negotiations [1][2]. Following this announcement, the stock markets responded positively, with the S&P 500 climbing 184.28 points or 3.3% to close at 5,844.19, and the Nasdaq Composite jumping 779.43 points or 4.3% to 18,708.34, marking its entry into a new bull market [1].
Economic Implications and Market Optimism
The rollback of tariffs has been projected to boost US economic growth by 0.4 percentage points over the current year. Additionally, Goldman Sachs adjusted its recession probability forecast down from 45% to 35% and upgraded its growth expectations, underscoring the positive sentiment among investors and analysts alike [1]. The announcement of the tariff truce has also led to gains in sectors heavily impacted by previous tariffs, such as consumer goods and travel. Companies like Lululemon and Nike saw their stock prices rise by 8.7% and 7.3% respectively, with travel stocks such as Carnival and Delta Air Lines rising by 9.6% and 5.8%, respectively [1].
Challenges and Uncertainties Ahead
Despite the immediate positive reaction in the markets, the agreement does not entirely resolve underlying uncertainties. Economists have warned that the temporary nature of the deal might allow uncertainties to persist, potentially affecting inflation and employment. Analysts have expressed concerns regarding the long-term feasibility of a lasting trade agreement, highlighting that significant hurdles remain before a comprehensive deal can be reached [2][3]. The Federal Reserve also continues to monitor the situation closely, having held interest rates steady earlier in May due to economic uncertainties [3].
Future Prospects and Expected Outcomes
Looking forward, the 90-day period set for further negotiations is crucial. While the reduction in tariffs offers temporary relief, both nations must work towards a more permanent resolution to avoid potential economic disruptions once the truce expires. Market participants are optimistic yet cautious, as the task ahead involves addressing complicated trade issues and reaching a mutually beneficial accord [4]. The future direction of interest rates and inflation will depend significantly on the outcome of these negotiations, with analysts predicting a potential policy easing by the Federal Reserve later in the year if economic conditions necessitate [5].