Stock futures rocketed higher Monday after the U.S. and China announced an agreement to reduce their reciprocal tariffs, offering a sense of relief for investors who’d feared a significant economic downturn from President Donald Trump’s trade policies.
In pre-market trading on Monday morning, Dow Jones Industrial Average futures pointed to the index opening about 1,000 points higher, which would be an increase of about 2.5%. S&P futures showed an opening 3% higher, while Nasdaq futures were up nearly 4%.
Beyond stocks, other signs pointed to growing optimism that the economic damage of tariffs could end up being limited. Most notably, the odds that the Fed will keep interest rates at current levels through its July meeting surged nearly 10 percentage points on fears that current levels of inflation will not abate. There had been growing expectations that an economic slowdown related to tariffs would push the Fed to cut rates in order to boost the economy.
In a joint statement early Monday, the U.S. announced it would slash the duties levied on Chinese imports from 145% to an all-in rate of 30%, while China’s levies on U.S. imports would drop from 125% to 10%. For the U.S., the 30% rate represents a 10% baseline rate plus a 20% rate imposed to get China to curb fentanyl flows.
Even with some duties still in place, the reaction to the announcement from markets early Monday has been nearly euphoric. Stocks had already regained the losses seen since Trump’s shock “Liberation Day” announcement April 2, but major indexes remained as much as 10% lower since inauguration.
“We believe the risk of a more severe economic downturn is now more limited, and we rate US equities as Attractive,” UBS analysts said in a note to clients late Sunday, before the joint statement had even been released.
But even though the tariffs reduction is larger than some analysts had anticipated, tensions remain, and goods shipped in from China will still be more expensive for U.S. consumers relative to the pre-tariffs scenario.
A 30% rate — which is effectively 40% when other product exclusions are factored in, according to Capital Economics consultancy — is still “substantially higher than most on other countries,” Capital Econ analysts said in a note.
Meanwhile, the “underlying strains that put the U.S. and China on a collision course” in the first place, primarily the large trade imbalance the U.S. incurs with China, “have not gone away,” the analysts said.
What’s worse, “differences are wider now” amid pushes by the U.S. to get countries like the U.K. to exclude China from its supply chains, the analysts wrote.
In an appearance on CNBC, Treasury Secretary Scott Bessent said it would be “implausible” for tariffs to fall below 10% even if further negotiation breakthroughs were reached. He also said the U.S. would continue to seek “decoupling” from China on strategic industries like steel and semiconductors.
Still, he struck an upbeat tone about the prospect of future meetings.
“We got a lot done over two days,” he said. “So I would imagine that in the next few weeks, we will be meeting again to get rolling on a more fulsome agreement.”
