Global markets experience significant gains as US President Donald Trump announces plans to reduce tariffs on Chinese goods, sending shockwaves through major indices.
The news of Donald Trump‘s intention to reduce tariffs on China sent shockwaves through the global market, with major indices experiencing significant gains in early trading. The S&P 500 blue chip index and the Nasdaq ended the day up by more than 2.5%, while Japan‘s Nikkei rose by nearly 2%. Hong Kong‘s Hang Seng was up 2.4% and South Korea‘s Kospi gained 1.6%.
In 2018, US President Donald Trump initiated trade talks with China to address growing concerns over intellectual property theft, forced technology transfer, and a massive trade deficit.
The talks resulted in the signing of the Phase One trade deal on January 15, 2020.
Key provisions included increased 'Chinese purchases of US goods and services' , enhanced protection for American companies' intellectual property rights, and improved access to China's financial markets.
However, the agreement has been criticized for its lack of enforceable mechanisms and its failure to address core issues such as 'currency manipulation' .
The rally spread to Europe, with the UK‘s FTSE 100 index up 1.6% and Italy‘s FTSE MiB rose by 1.1%. Germany‘s Dax gained 2.6%, while France‘s Cac 2.1% followed suit.
The announcement from Trump also boosted investor confidence, with the US dollar rising by 0.25% against a basket of major currencies. Oil prices rose above $68 (£51) a barrel amid hopes that lower tariffs will be less damaging to the global economy.
New American sanctions targeting Iranian liquefied petroleum gas and the crude oil shipping magnate Seyed Asadoollah Emamjomeh also contributed to the rise in oil prices. However, gold prices retreated from a new high of $3,500 (£2,620) an ounce, trading at about $3,307.
The prospect of lower tariffs on Chinese imports to the US and the hint that the US central bank will remain independent also helped stocks rise on Wednesday. Trump‘s comments on Jay Powell, the chair of the American central bank, reversing his previous day’s losses triggered by a criticism of the Fed chair.
Janet Yellen's predecessor, Jerome Powell, has had a complex relationship with former US President Donald Trump.
During Powell's tenure as Chairman of the Federal Reserve, Trump frequently criticized his monetary policy decisions, calling them 'crazy' and 'irresponsible.' In 2020, Trump even threatened to remove Powell from office via executive order.
Despite this tumultuous dynamic, Powell maintained a neutral stance on politics, focusing on stabilizing the economy through quantitative easing and interest rate adjustments.
The US president told reporters in Washington on Tuesday that he planned to be ‘very nice’ to China in trade talks and that tariffs could drop in both countries if they could reach a deal. Trump added: ‘It will come down substantially, but it won’t be zero.’
During his presidential campaign, Donald Trump made several promises regarding the US-China trade relationship.
He vowed to label China a 'currency manipulator,' impose tariffs on Chinese imports, and renegotiate major trade agreements.
In 2018, the US imposed tariffs on $50 billion worth of Chinese goods, with China retaliating with its own tariffs.
The US-China trade war escalated in 2019, with the US imposing additional tariffs on $200 billion worth of Chinese goods.
According to the US Census Bureau, the trade deficit with China decreased by 13% in 2020 compared to the previous year.
