US stocks big pump due to tariff relief, but US economic rise remains uncertain.

Author: Matt Peterson Editor: Li Jingying

The US stock market surged on Monday as the Trump administration indicated that it would not impose massive tariffs on China, but the market and economic outlook remains unclear.

The stock market finally breathed a sigh of relief. After the Trump administration indicated that it would not impose large-scale tariffs on China, the U.S. stock market surged on Monday, but this is akin to celebrating after not shooting oneself in the foot.

After the colorful confetti and empty champagne bottles scattered from the market surge on Monday were cleared away, the future of the market and economy still looks shrouded in fog.

The agreement with China has not yet been reached, and the tariffs imposed by the United States on China and other countries remain at a high level that could seriously impact the U.S. economy. Additionally, the tax reform, another major policy initiative that the Trump administration hopes to use to boost growth, is far from complete, and given the current direction of progress, it may exacerbate the concerns of bond investors.

The Dow Jones Industrial Average soared more than 1,100 points on Monday after U.S. Treasury Secretary Mnuchin and U.S. Trade Representative Lighthizer stated in Geneva that the United States would only impose an additional 30 percent tariff on Chinese goods, rather than the previously threatened 125 percent. The 25% tariff imposed on most Chinese goods during Trump's first term remains unchanged.

U.S. Treasury yields have risen, including the 10-year and 30-year Treasury yields, which may reflect that traders are shifting from fixed income to riskier stocks.

But whether the trade truce will lead to lasting peace remains to be seen. Basent and Greer stated at a press conference after reaching the agreement that China could never be brought to the negotiating table unless the U.S. issued serious threats.

However, even if this view is shared, opening negotiations will not be enough to resolve the long-term economic problems between the United States and China. This will require tougher negotiations, which must now be conducted in the light of the perception that the United States may back down from new pressures in financial markets.

The background to all this is that Trump and Bessent have committed to maintaining most of the new tariffs they have implemented, including a maximum tariff of 55% on Chinese goods and a 10% tariff on goods from other parts of the world.

White House Press Secretary Karoline Leavitt ( confirmed last week: "The president is determined to maintain the 10% baseline tariff."

Yale Budget Lab ) estimates that this tariff level (Chinese tariffs plus baseline tariffs) could result in an average household losing $2,300 and cause the U.S. economy to "shrink by 0.4%".

With the arrival of slowing growth and the Federal Reserve's vigilance over potential price increases, the Trump administration will be eager for tax reform to help stimulate growth. However, this is not an easy task as the U.S. debt situation is worsening.

Stanford University finance professor and senior fellow at the Hoover Institution, Joshua Rauh, said: "The biggest risk of Trump's economic plan, the biggest risk to the current overall direction is the deficit and debt."

The public debt is equivalent to approximately 100% of the United States Gross Domestic Product (GDP), and at this level, even a small change in interest rates could have a huge impact on taxpayers.

The current actions of the U.S. Congress seem to suggest that adding more debt is feasible, but Labor says that Congress's assumptions may be misguided. Bond traders have warned that the $28.6 trillion U.S. Treasury market has developed a new risk premium driven by the uncertainty of U.S. policy.

The nonpartisan Congressional Budget Office ( predicts that in 10 years, 22 cents of every dollar spent by the federal government will be used to pay interest. However, this painful prediction is based on the assumption that the average yield on 10-year U.S. Treasury bonds will be 3.8% over the next decade.

Lao said: "Is there any reason to doubt this? You can get the market's prediction for the yield on 10-year U.S. Treasury bonds in 10 years. This is called the 10-year forward rate of the 10-year U.S. Treasury bond, which is more than a percentage point higher than the Congressional Budget Office's forecast."

Lao said that if this situation does not change, then 29 cents of every dollar in federal spending will be used to pay interest.

Tax negotiations may resolve this issue, but the progress so far has been discouraging. The House Ways and Means Committee ) released details of a comprehensive tax bill on Monday, one surprising aspect being the proposed increase of the cap on state and local taxes, which has caused divisions within the Republican Party.

But how to combine these policies to secure the votes of nearly all Republican members in the House and Senate is currently unclear.

As if the legislative risks weren't already significant enough, the Republicans need to raise the debt ceiling before August. Foreign investors seem to be paying attention: they reduced their purchases of U.S. Treasury bonds in last week's 30-year bond auction. The warning signals from the bond market are clear for anyone who wants to pay attention.

It is easy to think that tariffs and taxation processes are separate. However, stock investors need to understand the connection between the two.

Analyst Jawad Mian (Jawad Mian) wrote in his newsletter Stray Reflections on Monday: "Every rally ends up with this: moving from reacting to news to needing something deeper to believe. Trade news brings relief, and tax cuts bring hope. If the legislative advance is frustrated, or if the package is diluted, it could weaken the backlash. It's a delicate transition: from trade to taxes, from story to substance, from optimism to outcome. This is where the fragility of the present moment lies. "

This government still has the potential to successfully complete the handover, and the possibility of abandoning the imposition of blockade-level tariffs on Chinese goods may have won some breathing room for the U.S. government.

But this is not the end of the negotiation; this is just a beginning, and the conclusion has yet to be written.