Dow Jones jumps 150 points after US-China trade truce

The Dow Jones surged after US President, Donald Trump, and China’s President, Xi Jinping, reached a truce in their tariff war. Trump announced the US would not impose additional tariffs on $300 million worth of Chinese imports. Trump also revealed that US corporations can continue to conduct business with Chinese electronics company Huawei.

US businesses relieved about tariff resolution and easing of Huawei ban

Trump and Xi reached an agreement not to implement additional tariffs at the recent G20 summit. Many US businesses that manufacture products in China like Nike noted that the tariff war would negatively impact their profits and raise prices for consumers. Share prices for those corporations have increased after the news of a trade resolution.

Trump also eased restrictions on US businesses selling electronic components to Huawei. He felt the trade ban was unfair to US companies that supply parts to the Chinese corporation.

‘US companies can sell their equipment to Huawei. We’re talking about equipment where there’s no great national security problem with it,’ said Trump.

Huawei is still on the Entity List of companies that are perceived as national security risks to the US. Trump also didn’t say which specific companies can work with Huawei.

Many companies that were banned from partnering with Huawei saw their revenue forecasts decline. When Broadcom noted in mid-June that losing Huawei as a client could cost the corporation $2 billion, the Dow Jones plunged. After Trump announced the lift of the Huawei ban, Broadcom and other chipmakers like Micron that conduct business with Huawei saw their stocks rise.

What do economic experts say about the Dow Jones rally?

Alec Young, managing director of FTSE Russell Global Markets Research, believes that investors are relieved about the moratorium on tariffs.

‘Stocks are welcoming a US-China trade truce at the G20 as it takes worst-case economic tail risks off the table. The biggest driver of investor relief is that the much feared 25% tariff on an additional $300 billion in Chinese imports has been put on hold as trade negotiations resume,' said Young.

'Had those tariffs gone into place, they had the potential to do significant damage to second-half consensus economic and earnings growth prospects,’ added Young.

However, financial expert Larry McDonald, says that trade volatility between the US and China could still lead to lower earnings for corporations and drag down the Dow Jones.

‘CFO [chief financial officers]’s cannot make decisions with a purgatory of uncertainty, endlessly hanging over the market,’ said McDonald.