Last Updated Dec 3, 2018 4:09 PM EST
U.S. stocks closed sharply higher on Monday after President Donald Trump and Chinese President Xi Jinping called a truce in the countries’ ongoing trade war.
Mr. Trump agreed to hold off on a sharp hike in tariffs on Chinese imports that had been scheduled to take effect Jan. 1. In return, the People’s Republic reportedly committed to buy more American farm, industrial and energy goods and tighten restrictions on sales of fentanyl, among other concessions.
The Dow rocketed at the opening bell, rising by 1.7 percent, then drifted lower but still ended 288 points higher, up 1.1 percent at 25,826. The S&P 500 jumped 1.1 percent to close at 2,790, while the tech-heavy Nasdaq composite finished 1.5 percent higher, at 7,442. Leading the rise were big-name tech companies that would have been subject to more tariffs in January, with Apple gaining 3.3 percent, or $6.24, to close at $184.82.
The U.S.-China trade understanding so far lacks detail, but it allows the two countries an additional 90 days to negotiate a deal. The U.S. will postpone until Mar. 1 a plan to raise tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent, with Washington set to resume talks with Beijing in hopes of a longer-term deal on trade.
“This agreement at least postpones further escalation in the trade war, avoiding an outcome that would have roiled financial markets,” Eurasia Group analysts wrote in a research note. “That appears to have been a key consideration for Trump, who became more open to a deal as US stock markets weakened in October and November.”
In a late Sunday tweet, Mr. Trump also said China has “agreed to reduce and remove” tariffs on U.S.-made cars, although Chinese officials have yet to confirm that claim.
Asian and European markets rose sharply after news of the cease-fire on trade at this weekend’s G-20 summit in Buenos Aires, Argentina.
Still, analysts said it remains to be seen if the sides are able to forge a pact on trade.
“The gap between their positions is wide on the fundamental issues: The US-China trade imbalance, unfair Chinese trade practices, and Chinese state support for economic champions,” PNC Senior Economist Bill Adams wrote in a note. “Ninety days is very little time to fix these perennial issues. But at least, a delay in tariff escalation is positive for the near-term economic outlook, and the decision keeps alive the prospect of a resolution of the US-China trade conflict.”
The markets’ positive reaction on Monday obscures the fact that a firm agreement appears far off.
“While the Xi-Trump dinner has clearly improved the tone of the U.S.-China relationship for the time being … the ‘pause’ prolongs the period of uncertainty around the eventual structure of trade relations between the two countries,” Goldman Sachs analysts said in a report. “The specter of higher and broader US tariffs remains, and the underlying issues clouding the trade relationship are deferred to further negotiations.”
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