US stocks soar as Donald Trump backs down in global trade war

Donald Trump stunned global investors on Wednesday when he announced a 90-day pause in additional tariffs on countries that were willing to negotiate with the US, sending stocks surging as the president backed down from a full-blown trade war.

Wall Street equities surged immediately after Trump’s announcement, with the blue-chip S&P 500 closing up 9.5 per cent and the Nasdaq Composite surging more than 12 per cent. It was the best day for the S&P 500 since 2008 and the strongest for the Nasdaq since 2001.

The massive rally in stocks added about $4.3tn to the market value of the S&P 500, according to Financial Times calculations based on FactSet data. The gains reversed some of the heavy losses for US stocks since Trump announced his wide-ranging tariffs a week ago.

However, the president also singled out China for further tariffs, increasing his additional levies on the world’s second-largest economy to 125 per cent, deepening his trade stand-off with the Asian nation.

Trump said in a Truth Social post: “Based on the fact that more than 75 Countries have called . . . to negotiate a solution . . . and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.”

But China had showed a “lack of respect” by retaliating against US tariffs, Trump added. “I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately.”

The stunning climbdown from the US leader came after a week of turmoil in global markets, with trillions of dollars shed in equity prices around the world, a sharp sell-off in US bonds, and a plunge in oil prices to levels last seen during the coronavirus pandemic.

“This is Trump’s capitulation to markets,” said Andy Brenner at NatAlliance Securities. “He has saved face by keeping tariffs on China.”

A heavy sell-off in US government debt, a bedrock of the global financial system, eased following Trump’s U-turn and a Treasury auction that signalled robust international demand. The 10-year yield, which had been up as much as 0.24 percentage points on Wednesday, ended the New York day up 0.08 percentage points at 4.35 per cent.

Companies that had been beaten down in recent days also posted huge gains on Wednesday. Apple, Nvidia, Microsoft, Amazon, Meta and Tesla all jumped at least 10 per cent following Trump’s announcement.

Commerce secretary Howard Lutnick said the “world is ready” to work with Trump to “fix global trade” but dismissed China as having “chosen the opposite direction”.

Lutnick added on X that he and Treasury secretary Scott Bessent “sat with the President while he wrote one of the most extraordinary Truth posts of his Presidency”.

Later on Wednesday, Trump appeared to acknowledge some of the fear in the markets sparked by his trade war.

“Well, I thought that people were jumping a little bit out of line. They were getting yippie, you know, they were getting . . . a little bit afraid,” he told reporters.

Wednesday’s market rally after Trump backed away from many of his tariffs made it “the biggest day in financial history”, he said.

Wall Street banks had warned the levies would send the US economy into recession while boosting inflation and unemployment.

Just before Trump’s shock announcement on Wednesday, Goldman Sachs predicted a recession in the US economy triggered by the president’s trade war. Just over two hours later the bank rescinded its prediction.

Still, investors and economists warned remaining tariffs, including a 10 per cent blanket levy on most imports from around the world, would weigh on growth and push up prices.

“Pausing reciprocal tariffs excluding China does not mean the US economy has avoided a slowdown in growth and rise in inflation,” Citigroup said. “Uncertainty over trade will persist and non-China imports may now surge, damping growth in the second quarter.”

Trump’s climbdown ushers in a phase of what are expected to be multiple, parallel trade negotiations between the US and its top trading partners over the coming weeks to try to resolve commercial tensions.

Bessent on Tuesday announced he would lead talks with Japan, alongside Trump’s top trade negotiator, Jamieson Greer, in an effort to strike a deal that could lead to lower tariffs.

The move came after days of mixed messages from Trump administration officials over how durable the tariffs would be and whether the US was open to talks with its trading partners in order to have them reduced.

Greer was giving testimony in front of the House of Representatives’ ways and means committee when Trump announced his pause.

“WTF, who’s in charge?” Steven Horsford, the Democratic lawmaker from Nevada, shouted at Greer moments after Trump announced the pause.

Horsford asked Greer if he was aware the president had just paused his tariffs. Greer replied he was aware the proposal had been “under discussion”.

Source: James Politi, Aime Williams, Kate Duguid and Harriet Clarfelt, FT