Wall Street Analysts Divided Over Impact Of US-China Trade Deal

A US-China trade deal, announced on 12 May 2025, has slashed tariffs from over 100% to 10% for 90 days, propelling the S&P 500 to its highest level since March.

This temporary truce in a bruising trade war has sparked a global market rally, but Wall Street analysts remain sharply divided on its long-term impact. With £460 billion ($607 billion) in bilateral trade at stake, the deal's promise of growth clashes with fears of persistent inflation and unresolved tensions.

Markets Surge, Optimism Tempers

The agreement triggered a broad rally on 12 May 2025, with the S&P 500 climbing 1.67%, Europe's Stoxx 600 gaining 1%, and Hong Kong shares soaring 3%, according to CNBC.

'By removing the tail risk of a recession, markets are saying the growth outlook isn't that bad,' said Torsten Sløk, Apollo's chief economist, in a statement reported by Business Insider.

The US-China trade deal, effective from 12 May 2025, has slashed tariffs from over 100% to 10%, easing supply chain bottlenecks for industries like electronics and automotive, stabilising production costs.

This has prompted traders to reduce expectations for Federal Reserve rate cuts from four to two in 2025, reflecting optimism for economic growth. However, the US tariff rate, now averaging 14% compared to 3–4% during the Biden administration, continues to drive inflation, raising consumer prices for apparel, electronics, and other imports.

The temporary deal, expiring 10 August 2025, leaves unresolved issues, such as the £230 billion ($303 billion) trade deficit, sustaining economic uncertainty.

Corporate Hesitation Amid Uncertainty

The deal's 90-day duration, set to expire on 10 August 2025, has left businesses cautious, with many delaying investment plans. 'It's encouraging, but the lack of clarity keeps CEOs in wait-and-see mode,' said Roger Altman, Evercore's founder, as quoted in the same Business Insider report on 12 May 2025.

China's decision to lift rare earth export bans, a key concession valued at £7.8 billion ($10 billion) annually, has eased tech sector fears, particularly for chipmakers reliant on these materials, per Reuters.

However, Beijing's insistence on 'constructive talks' signals challenging negotiations ahead, especially on unresolved issues like the £230 billion ($295 billion) US trade deficit.

On X, users cited Quartz on 12 May 2025, reflecting analysts' mixed reactions, from bullish optimism to cautious warnings about renewed trade tensions.

Inflation Risks vs. Growth Hopes

Some analysts see a brighter horizon. 'The growth picture is better if tariffs aren't as onerous,' said Michael Wilson of Morgan Stanley, speaking to CNBC on 12 May 2025.

A weaker US dollar and lower recession risk could lift corporate earnings in late 2025. Yet, others warn of stagflation. 'Economic activity will be higher for the next 90 days, but we'll see slowing growth and higher inflation,' said Mohamed El-Erian of Allianz on CNBC, per the same report.

The IMF's forecast on 16 April 2025 projects 2.8% global growth and a 0.9% US GDP dip, attributing rising costs to tariffs, with apparel prices set to surge 33%, per Yale's Budget Lab, as reported in Business Insider.

The US-China trade deal, announced on 12 May 2025, offers temporary relief by cutting tariffs to 10%, boosting markets. However, its 90-day term, expiring 10 August 2025, and unresolved issues, like the £230 billion ($303 billion) US trade deficit, keep Wall Street anxious, per Reuters.

Will this lead to lasting de-escalation, or is it a fleeting pause in a prolonged economic standoff? The next 90 days will be pivotal.