Recent discussions between U.S. and Chinese representatives have once again brought the specter of tariffs to the forefront, with markets anxiously awaiting Monday’s announcements. This development raises a crucial question: Will we see a decisive resolution, or will continued uncertainty weigh on the global economy?
Breaking Development
In a significant move, China announced that it will dramatically reduce tariffs on U.S. goods from the current 125% to 10% for a 90-day period. This temporary reduction represents a potential opening for further negotiations and signals China’s willingness to de-escalate trade tensions, at least in the short term. Markets will now focus on whether this temporary measure could lead to a more permanent resolution and how the U.S. administration will respond.
Historical Precedent
Notably, the current situation echoes a similar scenario during President Trump’s first term. In 2018, the U.S. initiated a tariff offensive against China. Following negotiations, tariffs settled around the 20% mark. Subsequently, the S&P 500 experienced a significant 31% surge in 2019, recovering from an approximate 6% dip in 2018, which included a substantial loss of over 20% in the fourth quarter – a pattern strikingly similar to the market fluctuations observed in the first quarter of 2025.
Timeline of Previous Tariff Escalation
The specific tariff escalations during that 2018-2019 period included:
- First Six Months of 2018: A gradual increase in tariffs between the two nations.
- July – September 2018: A sharp acceleration in tariff hikes on both sides, with U.S. average tariffs climbing from 3.8% to 12.0% and China’s average tariffs rising from 7.2% to 18.3%.
- September 25, 2018 – June 2019: An extended period of relative stability in tariff levels.
- June – September 2019: Another round of tariff increases was implemented by both the U.S. and China.
Given this historical precedent and recent White House statements hinting at a potential “soft landing” similar to the 2018-2019 outcome, speculation is mounting about whether the S&P 500 could witness another substantial rally in the coming year.
Challenges to Resolution
However, significant challenges could alter this trajectory. A resolution might depend heavily on public response to these trade policies. Should Americans mobilize en masse against tariffs, their collective voice could persuade business leaders and eventually politicians to advocate for policy changes. This process of building consensus against tariffs would take time – potentially stretching from months to years – and without such pressure, trade tensions could persist through the 2026 mid-terms or even to the 2028 presidential election.
China’s Position
China’s stance presents another critical variable. While China has signaled its willingness to come to the negotiation table with its temporary tariff relaxation, President Xi Jinping is unlikely to concede ground in the long run – particularly when facing a confrontational U.S. administration. While imposed tariffs will dampen demand for Chinese goods and impact producers, the Chinese government stands ready to support its industries, adding complexity to any potential resolution. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last seven market crashes.
Broader Economic Risks
The broader economic landscape compounds these concerns. The combined challenges of 2025 – including the interconnected impact of tariffs, taxes, and deportation policies – create vulnerability to credit rating downgrades. Such downgrades, paired with eroding foreign investor confidence in unpredictable U.S. economic policies, could lead to diminished demand for U.S. Treasuries and threaten their “safe haven” status. In the most severe scenario, this downward spiral might even raise the possibility of a U.S. debt default that would create market turmoil exceeding that of the 2008-2009 financial crisis. Investors should prepare for sudden, steep declines that could wipe out trillions in market capitalization. Our take on U.S. Debt Downgrade Looming – A Move To Crash S&P By 50%? has more details.
As Monday’s announcements approach, markets remain poised between two possibilities: a replay of 2019’s positive resolution or a new chapter of extended uncertainty with potentially far-reaching economic consequences.
The last thing you want is for your investment portfolio to take an outsized hit when things head south. At the very least, you would like your investment to do better than the overall equity market – particularly during bad times.
The Trefis High Quality (HQ) Portfolio, which is rooted in quality that seeks reliability, predictability, and compounding growth, is an option you can explore. With a collection of 30 stocks, it has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Read the full article here
