Key Takeaways
- Stocks were buoyant on Monday after White House officials said the U.S. and China had agreed to scale back tariffs for 90 days as negotiators work on a long-term deal.
- The reprieve exceeded Wall Street’s expectations and reassured some investors that President Trump’s steepest tariffs are more a negotiating tactic than a permanent policy.
- Analysts warn that the administration still has plenty of work to do, with negotiations between the U.S. and dozens of countries continuing and “Liberation Day” tariffs set to go back into effect in early July.
Christmas arrived early this year on Wall Street.
Treasury Secretary Scott Bessent on Monday said the U.S. and China agreed to slash tariffs on each other’s imports for 90 days while officials hammer out a comprehensive trade deal. The U.S. will lower duties on Chinese goods to 30% from 145%, while China will cut tariffs on U.S. imports to 10% from 125%.
The tariff reprieve exceeded the expectations of many on Wall Street. “No one had these low China tariff rates on their bingo cards,” Jeff Buchbinder, chief equity strategist at LPL Financial, said. They may not have even been on President Donald Trump’s; “80% Tariff on China seems right! Up to Scott B.,” the president said on Friday, referring to Bessent.
Stocks Soar on ‘Dream Scenario’
Stocks were buoyant on Monday, with the S&P 500 rallying more than 3% to recoup all of its post-“Liberation Day” losses.
Wedbush Securities analysts led by Dan Ives called Monday’s announcement “a dream scenario” that put the possibility of stocks hitting new highs this year back on the table. They concede that some damage has been done to supply chains and the economy since Trump announced sweeping “reciprocal” tariffs on April 2, but they expect “the Street will instead focus on normalized growth” now that recession risks are dramatically lower.
Chris Zaccarelli, chief investment officer for Northlight Asset Management, interpreted Monday’s announcement as a sign that “the Trump administration was using tariffs as a negotiating tactic after all, and we aren’t going to go blindly back to the Smoot-Hawley days.”
The Trump administration has offered several justifications for tariffs. Officials have argued they will force trading partners into negotiations, raise federal revenue, and bolster American manufacturing, objectives that experts note are at odds with each other in many ways. Wall Street has been hoping tariffs will be short-lived negotiating tactics rather than permanent fixtures of U.S. trade policy.
The agreement with China also gives investors hope that the White House can find common ground with even its most hostile trading partners. “Of all of our trading partners, China is the most difficult – and potentially important – for the US to deal with and by tackling (and by appearances, beginning to solve) the most difficult problem, the market is going to take great comfort in the idea that there is a way forward,” Zaccarelli said.
What’s Next for Markets?
Wall Street’s attention now turns to early July, when Trump’s 90-day pause on most “reciprocal” tariffs is set to expire. “Expect volatility [as] we approach the 90-day reciprocal tariffs deadline,” said Gina Bolvin, president of Bolvin Wealth Management Group.
The White House says it is in the process of negotiating deals with dozens of countries, but experts note such deals often take far longer than 90 days to deliver. To that point, the U.S. and the U.K.—two close allies with relatively balanced trade—announced a framework for a trade deal last week, more than a month after “Liberation Day.”
“This is de-escalation, not a trade deal. More work remains to be done. A pause isn’t permanent,” LPL’s Buchbinder said. And an agreement with China, experts warn, will be among the most difficult to reach, considering the magnitude of trade between the two countries and their long history of distrust.
“The Chinese are quite adept at stalling, so there’s still a very steep hill to climb to get a real agreement,” said Jamie Cox, managing partner for Harris Financial Group. Nonetheless, even a temporary reduction is a massive relief to corporate America. “This pause gives US companies more time to adapt and to plan for contingencies should the trade talks go sideways again,” Cox said.
Plenty of Tariff Risk Remains
Wall Street was jubilant Monday, but tariff headwinds remain.
Experts warn a 30% tariff rate on China is still high enough to reduce trade and raise prices. Plus, all U.S. imports are still subject to a baseline 10% tariff that, judging from last week’s U.K. deal and Monday’s announcement, some experts say is likely here to stay.
Monday’s pause lowered the effective U.S. tariff rate to 15% from 24%, according to UBS economist Abigail Watts. That’s an improvement, but 15% is still five times the rate when Trump took office.
There are also lots of deals left to negotiate and not a lot of time to do so. “Risk remains that tariffs go back up from current levels as the pauses end,” Buchbinder said. He also noted that, with a price-to-earnings ratio of about 21 times, “all the good news is priced in” to U.S. stocks.
