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Stock markets experienced a significant surge Tuesday afternoon, driven, at least in part, by reduced anxieties surrounding the potential severity of President Donald Trump’s proposed tariffs. The Dow Jones Industrial Average jumped 448 points, a gain of approximately 1%. The S&P 500 index rose by about 0.8%, while the Nasdaq index saw a more modest increase of 0.65%.
While President Trump signed numerous executive orders on his first day back in office, covering topics from mandatory office returns for federal employees to efforts to curtail birthright citizenship, his rhetoric on tariffs was noticeably less aggressive than anticipated by analysts.
Initial Tariff Concerns Subside
Goldman Sachs analysts observed in a research note published Tuesday that while major policy announcements so early in President Trump’s return were unexpected, his commentary on China was considerably less hawkish than during his presidential campaign or even in his remarks following the election.
Throughout his presidency, Trump had frequently brandished the threat of imposing sweeping tariffs, ranging from 10% to 20%, on all imported goods. He also threatened tariffs as high as 60% to 100% on imports specifically from China. However, on Monday, Trump acknowledged that the US was “not ready for that just yet.” He also revealed a recent phone conversation with Chinese President Xi Jinping, where they discussed trade, the social media platform TikTok, and the ongoing fentanyl crisis, according to a post on Truth Social.
Goldman Sachs Adjusts Tariff Predictions
In response to the tempered tone, Goldman Sachs lowered its estimated probability of a substantial 20-percentage point tariff increase on Chinese imports from 90% to 70%, though they retained this scenario as their baseline projection.
Lingering Tariff Threats Remain
Despite the softened rhetoric on China, President Trump indicated his intention to impose tariffs on some of the United States’ key trading partners. He announced plans to levy tariffs of up to 25% on Mexico and Canada as early as February 1st, citing their failure to meet specific criteria he had outlined to avert such measures.
Trump justified the potential tariffs by asserting that both countries were permitting the entry of “vast numbers of people” and fentanyl across the border. This statement was made in response to reporters’ questions at the Oval Office on Monday night.
However, Goldman Sachs analysts pointed out that Trump had made a similar threat in 2019, proposing a tariff of up to 25% on Mexico within 10 days, a tariff that ultimately never materialized. Furthermore, Trump has entertained the possibility of using tariffs to facilitate various ambitious, and arguably unrealistic, goals, such as purchasing Greenland from Denmark, annexing Canada, and acquiring the Panama Canal.
Conclusion: Market Responds to Reduced Trade Tensions
The stock market’s positive response suggests a degree of relief among investors regarding the immediate prospects of widespread and severe tariffs. While the threat of tariffs remains, the dialing back of aggressive rhetoric, particularly towards China, has contributed to a more optimistic market outlook. The future implementation and impact of any tariffs remain uncertain and will continue to be a focal point for market observers.
