Investors are eyeing a rebound in stock markets after Friday’s trade war flare-up sent the S&P 500 to its worst loss since April.
President Donald Trump sought to calm nerves in a post on Truth Social on Sunday, after announcing Friday that he would impose an additional 100% tariff on China and limit U.S. software exports.
“Don’t worry about China, everything will be fine!” he wrote. “The highly respected President Xi has just had a bad time. He doesn’t want depression for his country, and neither do I. The United States wants to help China, not hurt it!!!”
Meanwhile, Vice President JD Vance told Fox News Future of Sunday morningHe says the United States is willing to be reasonable if China is reasonable, even as he insisted Trump has the upper hand with “far more cards” than Beijing holds.
The shift in tone contrasts with Trump’s fiery rhetoric on Friday, who attacked China for its new export controls on rare earths, which are essential inputs to a range of industries.
“Market participants appear to be looking once again at the TACO trade, fueled not only by what we have seen in the recent past, but also by conciliatory weekend remarks from President Trump and Vice President Vance, suggesting that Friday’s announcement of additional 100% tariffs on Chinese imports will likely be little more than a negotiating tactic,” Michael Brown said Sunday, senior research strategist at Pepperstone.
Futures contracts tied to the Dow Jones Industrial Average jumped 382 points, or 0.84%. S&P 500 futures rose 1.27% and Nasdaq futures rose 1.79%.
The 10-year Treasury yield fell 8.9 basis points to 4.059%. The US dollar rose 0.04% against the euro and 0.48% against the yen. Gold climbed 1.43% to hit a new high of $4,057.50 an ounce. U.S. oil futures rose 1.29% to $59.66 a barrel and Brent crude gained 1.32% to $63.56.
Trump previously imposed 145% tariffs on China, then suspended them to allow negotiations to proceed. A similar pattern occurred with other trading partners like the European Union, leading Wall Street to reject maximalist threats with TACO trade (Trump always chickens out).
Brown said Trump’s new China tariffs, which would take effect Nov. 1 and raise the overall level to 130 percent, appear to be another example of his “escalate to deescalate” strategy.
“Assuming this is another ‘TACO’ situation and some clarity on this is achieved before too long, then this could prove to be another decline in stocks that should be viewed as a buying opportunity, with the path of least resistance continuing to lead higher, even if somewhat unsteadily,” he added.
At the same time, the Federal Reserve’s return to rate cuts amid continued strong economic growth should continue to support the dollar, which will likely shrug off tariff threats, Brown predicted.
Likewise, market veteran Ed Yardeni, president of Yardeni Research, also sees the United States and China pulling back from the precipice.
“If neither side blinked, the U.S. and Chinese economies would push the global economy into a deep recession or even depression,” he wrote in a note on Sunday. “But we expect both sides to blink very soon given the extremely damaging consequences of a trade war between the world’s two largest economies.”
For its part, Beijing remained defiant, with the Commerce Ministry saying on Sunday that China did not want a tariff war but was not afraid of one either. He also said export controls do not constitute a ban on rare earth shipments but are a sovereign right.
But China’s new rare earth export policy raises the bar well beyond a simple exchange of retaliation in the trade war against the United States.
Dean Ball, who served as a senior advisor in the White House Office of Science and Technology Policy earlier this year, wrote on X on Saturday that the policy gives Beijing the power “to ban any country on Earth from participating in the modern economy.”
Dali Yang, a political science professor at the University of Chicago, sounded a similar alarm in an article published Sunday, saying the move marks a watershed moment that reveals what a China-led order could look like.
Beyond rare earths, it leverages control of strategic materials and technologies to strengthen its global influence.
“China is effectively saying, ‘We control the arteries of high-tech civilization.’ The rest of the world now sees this message clearly and is scrambling to build new circulatory systems,” Yang wrote.
