Stocks Soar as Trade Tensions Ease

Stocks surge as Trump announces tariffs, trade war fears ease

By Matt Grossman, Quartz

May 31, 2018

US stocks surged on Wednesday after President Donald Trump announced a series of tariffs on Chinese goods, sparking a relief rally on Wall Street. The Dow Jones Industrial Average jumped 223 points, or 0.8%, to 24,474, while the S&P 500 rose 0.9% to 2,733.

Trump's announcement of tariffs on $50 billion worth of Chinese goods, as well as restrictions on Chinese investment in the US, was met with a mix of relief and concern on Wall Street. Investors had been bracing for a full-blown trade war between the US and China, but the president's measured approach seemed to ease fears of a catastrophic conflict.

The tariffs will target Chinese goods such as electronics, machinery, and textiles, and are designed to punish Beijing for alleged intellectual property theft and forced technology transfer. The restrictions on Chinese investment will apply to companies that pose a national security risk, and will be reviewed on a case-by-case basis.

Tesla and BYD, two companies heavily exposed to the US-China trade relationship, were among the biggest winners on the day. Tesla's stock rose 5.5% to $304.50, while BYD's American depositary receipts jumped 12.5% to $25.50. Both companies have significant business ties to China, and have been caught in the crossfire of the trade tensions.

The relief rally on Wall Street was not universal, however. Some investors were skeptical of the tariffs, and worried that they could ultimately harm the US economy. The tariffs could also spark retaliation from China, which could have negative consequences for US businesses and consumers.

Despite the uncertainty, investors seemed to breathe a sigh of relief on Wednesday. The VIX, a measure of market volatility, fell 11.5% to 16.25, its lowest level in nearly three weeks. The CBOE Volatility Index, which tracks options trading on the S&P 500, also fell 10.5% to 16.25.

The tariffs and restrictions are scheduled to take effect in the coming weeks, and will apply to a range of Chinese goods, including:

• Electronics: $34 billion worth of goods, including smartphones, laptops, and televisions
• Machinery: $21 billion worth of goods, including machinery, engines, and pumps
• Textiles: $6 billion worth of goods, including clothing, fabric, and yarn

The tariffs will be imposed at a rate of 25%, and will apply to a range of Chinese companies, including some of the country's largest and most prominent firms. The restrictions on Chinese investment will apply to companies that pose a national security risk, and will be reviewed on a case-by-case basis.