Historic U.S.-China Trade Deal Could Spark a 2025 Stock Market Boom

Yesterday wasn’t just another good day for the stock market. It was a turning point; a declaration that the worst of the trade war may finally be over. After weeks of tariff escalation and market volatility, the United States and China have struck a massive trade deal… and the stock market responded like a coiled spring. 

The S&P 500 roared higher to reclaim all of its post-Liberation Day losses. Between Friday May 9’s close and this morning’s open, the index has risen about 4%.

But this isn’t just about a rebound.

In our view, this truce reflects a full-blown ceasefire. And it just set the stage for a summer rally that could be legendary, especially in one of the most beaten-down – and now best-positioned – corners of the market: high-quality AI infrastructure stocks.

What the New U.S.-China Trade Deal Means for Markets

For weeks, investors were bracing for a full-scale economic decoupling between the world’s two largest economies. Tariff rates were ratcheting higher. U.S. companies were scrambling to reroute supply chains. Wall Street was staring down the barrel of a 125% reciprocal tariff rate on Chinese imports: a tax so punitive it threatened to choke off U.S.-China trade flows altogether.

And then yesterday’s news hit.

As CNN reported, “each side has agreed to lower ‘reciprocal’ tariffs on the other by 115 percentage points for 90 days.” In other words, the U.S. tariff rate on Chinese imports is set to fall from 125% to 10%. 

That’s not a typo. That’s a collapse in tariffs so dramatic, it’s hard to overstate. It takes us from a level of trade apocalypse to something resembling… sanity… even normalcy. 

Further, because China is such a large trading partner for America, the massive reduction in that reciprocal rate alone was enough to plunge the average effective U.S. tariff rate on all imports from 23% to just 13%. 

Yes, that’s still above the 3% pre-trade-war baseline from 2024. But it’s miles away from the crisis-level 30% rate we saw just weeks ago. And it’s only slightly higher than the White House’s new 10% “global minimum” tariff, which now appears to be a long-term policy anchor.

That leads us to believe that the worst of the trade war is not just behind us – it’s buried. And markets are finally free to price in the future again.

Why Lower Tariffs Could Spark an Economic Boom

Tariffs are a tax, plain and simple. And like any tax, they slow the economy. 

Indeed, the Federal Reserve estimates that every one-point rise in the average U.S. tariff rate drags on GDP by about 0.14%.

So, when tariffs were at 30%, that implied a 3.8% drag on GDP – enough to totally negate any positive effects from tax cuts, deregulation, or even rate cuts. It was like trying to sprint with a ball and chain.

But with tariffs now down to 13%, the drag is just 1.4%. That’s much more manageable. And with fresh tax cuts and deregulation policies also gaining steam – and rate cuts coming this year – the economy is looking at enough growth firepower over the next few months to largely (if not entirely) offset a 1.4% tariff-induced drag. 

Which means investors can stop fearing recession headlines and start focusing on what actually drives markets: earnings, innovation, and growth.