U.S. equity markets staged a recovery on Monday following a sharp sell-off at the end of last week, after former President Donald Trump appeared to moderate his rhetoric toward China. The Dow Jones, S&P 500, and Nasdaq all gained ground as investors interpreted his comments as signaling a possible de-escalation in the U.S.-China trade conflict.
From Threats to “Don’t Worry About China”
Late last week, markets were roiled when Trump threatened to impose 100 % tariffs on Chinese goods beginning November 1, in retaliation for Beijing’s tighter export controls on rare earth minerals, a move seen as critical to global tech and defense supply chains. However, over the weekend, he dialed back his tone, posting messages such as “Don’t worry about China, it will all be fine,” and indicating he is open to negotiation. This shift triggered optimism among traders that a full-blown trade war may yet be avoided.
The dollar also steadied, recovering some of its losses from last week’s turmoil, as markets took cues from the softened signals out of Washington. U.S. Treasury officials reiterated that the 100 % tariff is not inevitable and that diplomatic channels remain open.
Who Pays the Tariff Tab? Hint: Not Just Foreign Exporters
While Trump has repeatedly asserted that foreign producers will absorb the costs of tariffs, recent analysis suggests otherwise. According to Goldman Sachs, by year’s end, U.S. consumers will shoulder ~55 % of the tariff burden, with companies absorbing about 22 %. (Other estimates project the consumer share could rise even further.) Already, data indicate that prices of imported goods have risen by ~4 %, while domestic goods have seen ~2 % inflation, suggesting that firms are passing much of the cost onto consumers.
This dynamic amplifies inflationary pressure at a time when the U.S. is grappling with sticky price gains. Analysts warn that continued tariff escalation could further complicate monetary policy for the Federal Reserve.
Risks Loom Despite the Bounce
Despite the market rebound, caution remains widespread. The volatility underscores how sensitive markets are to policy signals.
Additional headwinds include:
• Consumer strain - Rising prices could weigh on spending, especially if middle- and lower-income households bear tariff costs.
• Retail disruption - The looming tariffs arrive just before the holiday season, putting pressure on retailers.
• Geopolitical escalation - China has vowed responses; if tensions escalate further, retaliatory actions could broaden the trade conflict.
• Monetary policy uncertainty - Higher inflation and policy volatility could complicate the Fed’s path, especially amid calls for interest rate cuts.
