Global stocks rise as Trump backs down from China tariffs and suggests he won’t fire head of Federal Reserve

The US had become embroiled in a trade war after Trump placed tariffs on China which quickly spiralled to 145%, and Beijing responded with a 125% tariff on US goods.

But Trump’s recent comments mark a significant climbdown from this aggressive tariff policy, as he said tariffs on China will “come down substantially, but it won’t be zero”.

Markets showed significant relief after his comments, as both the S&P 500 and Nasdaq indexes ended the day more than 2.5% up.

European markets also rallied, as France's CAC jumped 2.1%, while Germany's DAX rose 2.5% and Britain's FTSE 100 gained 1.6%.

Despite his high tariffs, Trump said he would be ‘very nice’ to China, as a trade deal between the countries is reportedly progressing.

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“We’re going to live together very happily and ideally work together,” Trump said.

The US president had placed tariffs on a number of countries, which sent stock markets across the world tumbling down as investors got spooked by slower growth and higher inflation.

Investors were also relieved by comments from US treasury secretary Scott Bessent in a Tuesday speech.

He said the ongoing tariffs showdown with China is unsustainable, and he expects a "de-escalation" in the trade war between the world’s two largest economies.

Stock prices were likely also helped by Trump’s suggestion that he would not fire the head of the US Federal Reserve, Jerome Powell, after previously attacking him.

On Monday, he called Mr Powell a ‘major loser’ for not lowering interest rates.

“There can be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump wrote on social media.

He had also suggested he would dismiss Powell before the end of his term, writing that his termination “could not come fast enough” on Truth Social, after the Fed chair expressed concerns about the impact of trade tariffs on the US economy.

But on Tuesday, Trump clarified he would not fire Powell. “The press runs away with things. I have no intention of firing him,” Trump told reporters at the White House.

“I would like to see him be a little more active in terms of his idea to lower interest rates. This is the perfect time to lower interest rates. If he doesn’t, is it the end? No, it’s not.”

The comments stemmed many investors’ fears, given the widespread consensus that the Federal Reserve’s independence is crucial to the health of the US economy.

Tim Waterer, chief market analyst at KCM Trade, said: "Of course, markets will continue to listen out for the latest White House rhetoric on tariffs and any hints of upcoming trade deals. As such, market direction will more likely than not continue to be dictated by Trump's latest whims regarding tariffs and trade."

The only prediction many Wall Street strategists are willing to make is that financial markets will likely continue to veer up and down as hopes rise and fall that Trump may negotiate deals with other countries to lower his tariffs.

If no such deals come quickly enough, many investors expect the economy to fall into a recession.