Stock markets surged Tuesday after President Trump said he would have an “extended meeting” next week with Chinese leader Xi Jinping, raising investor hopes a truce was within sight on global trade.
The Dow Jones industrial average jumped more than 300 points Tuesday morning after Trump confirmed the two would meet at the Group of 20 summit in Osaka, Japan. Economists and business leaders have been pressing for de-escalation over worries a protracted U.S.-China trade might weaken the economy, both domestically and globally. “Had a very good telephone conversation with President Xi of China,” Trump tweeted. “We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.”
By early Tuesday afternoon, the Dow was up 345 points, or 1.3 percent. The Standard & Poor’s 500 was 1 percent higher and the Nasdaq Composite index had advanced 1.6 percent.
Tuesday’s gains helped propel the Dow and S&P 500 closer to record highs set last fall, as investors anticipate a possible rate cut from the Federal Reserve. The central bank’s board, which is meeting Tuesday and Wednesday, will weigh the significant head winds from Trump’s multi-front trade war against other areas of relative economic strength, like low unemployment rates and heightened consumer spending.
Investors will be watching closely as Robert E. Lighthizer, the chief U.S. trade negotiator, testifies Tuesday before the Senate Finance Committee.
Trump and Xi had their last face to face in late 2018, at a G-20 summit in Argentina where they agreed to work toward a trade deal. But those talks – which at one point were “95 percent” complete by Trump’s estimation – stalled after U.S. officials accused China of backtracking on some elements of their negotiations at the last minute.
Trump has since imposed tariffs on $250 billion in Chinese imports to the United States. He also threatened to impose tariffs on another $300 billion in goods if Xi refused to meet with him at the G-20 summit.
The potential fallout from the U.S.-China trade conflict extends well beyond their respective borders, political leaders and economists say. In a G-20 briefing note, Christine Lagarde, managing director of the International Monetary Fund, warned that the last round of proposed tariffs against China could erase $455 billion in global gross domestic product in 2020.
“There is strong evidence that the United States, China and the world economy are the losers from the current trade tensions,” she wrote.
The prevailing uncertainty around the trade war, as well as signs of a global slowdown, prompted JPMorgan Chase on Monday to predict a 45 percent chance of U.S. recession in 2020, up from 20 percent at the beginning of 2018. Outlooks dampened further after a key gauge of New York’s manufacturing industry recorded its biggest ever one-month drop.
European markets also climbed Tuesday after Mario Draghi, president of the European Central Bank, outlined plans for stimulus to boost the euro zone economy and combat inflation. Germany’s DAX and France’s CAC were both up more than 2 percent in afternoon trading, and the Pan-European Stoxx 600 was up more than 1.6 percent.
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