Dow adds 1,100 points, S&P 500 up 3% after the U.S. and China slash tariffs

May 13, 2025
Dow adds 1,100 points, S&P 500 up 3% after the U.S. and China slash tariffs Dow adds 1,100 points, S&P 500 up 3% after the U.S. and China slash tariffs

Stocks rocketed higher Monday after the U.S. and China announced an agreement to reduce, for now, their reciprocal tariffs, offering a sense of relief for investors who’d feared a significant economic downturn from President Donald Trump’s trade policies.

The Dow Jones Industrial Average closed up more than 1,100 points, an increase of about 2.8%. With those gains, the Dow is now even for the year after having declined as much as 11%. Still, it remains 5.5% below the highs it reached in Febru.

The S&P 500, the broadest stock index, added 3.3%. The tech-focused Nasdaq soared 4.4%, and is now in a bull market, having gained 20% from the low it just saw one month ago — though it remains 6.7% off from its Febru all-time high.

Other indicators pointed to growing optimism that the economic damage of tariffs may end up being more limited than feared.

Most notably, the odds that the Federal Reserve will keep interest rates at current levels through its July meeting surged more than 17 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% for 90 days, 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.

That has alleviated some of the graver concerns about where the U.S. economy is headed and what it means for U.S. companies.

“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.

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 Secret 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.”

byWeb Desk
Published

Read more