Dow rises 1,000 points after Trump team cuts tariffs

Dow rises 1,000 points after Trump team cuts tariffs

New York – CNN – The US Stock futures rose sharply Monday morning after President Donald Trump's top trade officials made surprisingly significant progress over the weekend in de-escalating trade tensions with China. Tariffs have been cut to much lower levels, which some economists say could avert an impending U.S. recession.

Market figures are increasing significantly

Dow futures rose 1,000 points, or 2.4%. S&P 500 futures also gained 3.1%, while Nasdaq futures gained 4%. U.S. stocks were on track to recoup all losses since Trump's trade announcement on April 2 that imposed a 10% tariff on almost all goods imported into the United States. Shortly after they came into force, however, Trump suspended most of these tariffs and most recently increased import taxes on China to 145% on most Chinese imports.

Trade war and tariffs between the USA and China

As a result, China raised tariffs on US goods to 125%. The mutual trade war had brought trade between the two countries to a virtual standstill and poses the risk of significant price increases and shortages. Both sides agreed to cut tariffs by 115 percentage points, albeit at a significantly higher level than before Trump took office in January - although far lower than the historic levels last month, which caused great concern among American companies, consumers, economists and investors.

Optimistic outlook for the markets

Another crucial aspect of the talks: Bessent explained that the US and China have put in place a mechanism to avoid future tariff increases, suggesting that the worst of the trade war may be behind us. “There are still many factors working against a (global) recession, and the news of lower U.S.-China tariffs this morning adds to that evidence,” noted Henry Allen, a strategist at Deutsche Bank, in a note to investors Monday morning. “The resilience of the market itself makes a recession less likely as financial conditions ease.”

Investor reaction

As a result, Wall Street rejoiced on Monday morning. Investors showed greater interest in riskier assets, including stocks. The U.S. dollar rose 1% against a basket of currencies. U.S. oil, which had fallen earlier as investors feared a demand gap due to a tariff-driven global recession, rose 3.5% to $63 a barrel. Brent oil, the international reference price, also rose 3.3% to $66 a barrel. In contrast, investors sold safe-haven assets such as gold, which fell 3.9%.

Technology and luxury stocks on the rise

Technology stocks were among the big winners: Despite a recent exemption for hardware from tariffs on China, the technology sector suffered particularly from the trade war between the US and China. Apple ( AAPL ) gained 7%, Tesla ( TSLA ) rose 7.7%, Nvidia ( NVDA ) gained 5.1%, Amazon ( AMZN ) rose 8% and Intel ( INTC ) gained 4.1% on Monday morning. Shares of luxury goods makers, which had fallen in recent months, rebounded strongly: Hermès rose 4%, Burberry rose 6% and LVMH rose 7%.

Trade war de-escalation and market sentiment

US Treasury Secretary Scott Bessent characterized the trade war de-escalation he negotiated with his Chinese counterparts over the weekend as tough but respectful. “We were firm and we moved forward,” Bessent told CNBC from Geneva. He pointed out that the US is negotiating from a position of strength, as China is more reliant on the US market than the other way around. China's economy is struggling, with a housing crisis and an emerging debt crisis. This situation makes it unfavorable for China to engage in a crippling trade war.

Bessent pointed out that the US trade deficit can be seen as advantageous for negotiations: "We are the (trade) deficit country. Historically, the deficit country has a better negotiating position." Despite these positive developments, there remains concern that no one will emerge victorious from a trade war. Consumer sentiment in the US has fallen significantly in recent months, while inflation has increasingly worried people.

Outlook for the future

The new agreement, while welcomed by Wall Street and consumers, represents a remarkable shift for a Trump administration that just days ago had stressed that the trade confrontation with China was necessary to restore America's lost manufacturing power. As a next step, the US wants to focus on expanding supply chains for “strategic necessities” to reduce dependence on China for critical goods such as medicines, semiconductor chips and steel.

Bessent said: "We want decoupling on strategic imperatives that we were unable to achieve during Covid. In doing so, we recognized that efficient supply chains are not at the same time resilient supply chains." This restructuring aims to create fairness in international business and address “insider, non-tariff trade barriers” that harm American companies when operating abroad.