WASHINGTON — President Donald Trump’s decision to renew talks with China in the coming weeks sent financial markets soaring, as investors seized on the development as a sign that both sides could still find a way out of an economically damaging trade war.
The rally sent the S&P 500 up more than 1%, underscoring just how much financial markets are subsisting on hopes and fears about the trade war. Shares fell through most of August, as Trump escalated his fight with China and imposed more tariffs, only to snap back on Thursday after news of the talks.
But expectations for progress remain low, and many in the U.S. and China see the best outcome as a continued stalemate that would prevent a collapse in relations before the 2020 election. Both Trump and President Xi Jinping of China are under pressure from domestic audiences to stand tough, and the talks will happen after Trump’s next round of punishing tariffs take effect on Oct. 1.
“Continuing to talk soothes markets a little bit,” said Eswar Prasad, the former head of the China division at the International Monetary Fund. “But the political cost to making major concessions is, I think, too high for either side.”
Over two weeks, Trump has called Xi an enemy of America, ordered companies to stop doing business in China and suggested the U.S. was in no rush to reach a trade deal. On Sunday, he moved ahead with his threat to eventually tax every golf club, shoe and computer China sends into the United States, placing tariffs on another $112 billion of Chinese goods.
Stock investors have zeroed in on the threat the trade war poses to the economy, buying and selling in tandem with Trump’s trade whims. Thursday’s rally was the fifth positive performance for the market in the past six sessions.
The coming weeks could result in more of the same, analysts say: tough words when Trump wants to rally his base and a temporary cooling off when it seems to be hurting an economy that is one of his main arguments for reelection.