The U.S. and China recently agreed to a 90-day pause on their escalating trade war, significantly reducing tariffs on each other’s goods. The U.S. cut tariffs on Chinese imports from 145% to 30%, while China lowered tariffs on U.S. goods from 125% to 10%. This development has sparked a positive reaction in the stock market, reflecting investor optimism about de-escalating trade tensions.
The U.S. will lower its tariffs on Chinese goods from 145% to 30%, while China will reduce its levies on U.S. imports from 125% to 10%. This de-escalation aims to ease the trade war that has disrupted global markets, supply chains, and raised recession fears.
Both sides emphasized the importance of a sustainable, mutually beneficial trade relationship and established a new “trade consultation mechanism” for ongoing dialogue. However, the U.S. 20% fentanyl-related tariffs on China, imposed earlier in 2025, will remain in place.
Stock Market Reaction:
- S&P 500: The S&P 500 surged by 2.5% to 3.4% following the announcement, with the index reaching 579.641 USD, up from 565.0 USD on May 9, 2025. This rally reflects broad market relief, as reduced tariffs are expected to ease inflationary pressures and improve corporate profitability, particularly for companies reliant on global supply chains.
- Nasdaq: The Nasdaq Composite saw even stronger gains, rising by 3.1% to 3.4%. Tech-heavy indices like the Nasdaq benefited significantly due to the heavy reliance of tech companies on Chinese manufacturing and supply chains.
- Global Equities: The tariff pause fueled a global risk-on rally, with equities across major markets climbing. Posts on X noted a surge in investor confidence, as the truce is seen as a step toward stabilizing trade relations and averting further economic disruption.
- Sector-Specific Impacts:
- Technology: Companies like Apple and Nvidia, which faced significant pressure from earlier tariff hikes, saw sharp rebounds. Tech shares had previously dropped 4.5%–7% in extended trading when tariffs were at their peak.
- Retail: Retailers like Walmart, reliant on Chinese imports, benefited from reduced cost pressures. This follows earlier concerns raised at Walmart’s investor event about sourcing costs under high tariffs.
- Consumer Goods: Firms like Nike and Gap, which had seen share price drops of 7%–15% due to tariff-related cost fears, likely saw relief rallies.
Context and Sentiment:
- The tariff cuts are viewed as a pragmatic move to avoid economic “decoupling” between the U.S. and China, with U.S. Treasury Secretary Scott Bessent emphasizing both nations’ desire to maintain trade ties.
- Investors had been rattled by earlier market volatility, with the S&P 500 dropping 3.4% and the Nasdaq falling 4.3% when tariffs hit 145% on Chinese goods. The pause and reduction have reversed much of this pessimism.
- Posts on X describe the market response as a “global risk-on rally,” with the dollar also strengthening alongside equities, reflecting broader optimism about economic stability.
The U.S.-China tariff reductions have triggered a robust stock market rally, with the S&P 500 and Nasdaq posting significant gains of 2.5%–3.4%. Tech, retail, and consumer goods sectors have been key beneficiaries, driven by reduced cost pressures and improved trade outlooks. However, the temporary nature of the 90-day pause suggests markets remain sensitive to future developments in U.S.-China trade talks.
While the market reaction has been overwhelmingly positive, some caution persists. The 90-day pause is temporary, and the outcome of ongoing negotiations remains uncertain. Previous tariff escalations led to wild market swings, with the S&P 500 briefly entering bear market territory in early April 2025. Additionally, the tariff reductions may not fully reverse supply chain disruptions or inflationary pressures already embedded in the economy. Investors are likely pricing in hope for a longer-term deal, but any failure to extend the truce could reignite volatility.
