On May 7, 2025, stocks in the United States closed higher, buoyed by positive trade developments and the Federal Reserve's decision to maintain interest rates. The Dow Jones Industrial Average rose by 284.97 points, or 0.7%, while the S&P 500 and Nasdaq Composite gained 0.43% and 0.27%, respectively. Investors reacted favorably to news that the Fed would keep its benchmark interest rate unchanged, leaving it in a range of 4.25% to 4.5%. This decision follows previous meetings in January and March, where rates were also held steady after a series of rate cuts in late 2024.
Treasury Secretary Scott Bessent confirmed that he would meet with Chinese officials to further President Donald Trump's trade discussions with China, signaling a potential thaw in relations between the two economic giants. The announcement came during an appearance on "The Ingraham Angle," and helped spur a rally in the stock market.
In contrast, the previous day had seen stocks close lower, with the Dow falling 389.83 points, or 0.95%. This decline was largely attributed to ongoing concerns over trade tensions. Disney shares, however, surged after the company reported a 7% increase in profits to $23.6 billion and announced plans for a new theme park in Abu Dhabi, which CEO Robert Iger called a thrilling moment for the company.
Meanwhile, the U.S. trade deficit hit a record high of $140.5 billion in March, driven by a 14% increase in imports as businesses rushed to bring in goods ahead of impending tariffs. The Commerce Department reported that imports rose to $419 billion, while exports only edged up by 0.2% to $278.5 billion.
As trade tensions persist, BMW has expressed concerns over the impact of tariffs on its second-quarter results. Finance chief Walter Mertl indicated that while the company is optimistic about ongoing negotiations, it expects notable effects from the tariffs imposed by the Trump administration.
In Europe, the European Union is preparing countermeasures against U.S. tariffs, potentially including tariffs on Boeing jets. European Trade Commissioner Maros Sefcovic emphasized that the EU will not be pressured into accepting an unfair trade deal.
Looking ahead, Bessent's upcoming meetings in Switzerland with Chinese trade negotiators represent a crucial step in addressing the ongoing trade war. Bessent remarked, "We don’t want to decouple with China; what we want is fair trade." He noted that the current tariffs and trade barriers are unsustainable and emphasized the need to build mutual agreements.
China's economy has been facing challenges, with the People's Bank of China cutting interest rates as part of stimulus measures. The Chinese government has previously stated that it would not engage in talks unless the U.S. first removed tariffs, highlighting the complexities of the negotiations.
As both sides prepare for discussions, analysts caution that significant breakthroughs are unlikely in the short term. The trade war has already affected various sectors, with retailers warning of potential price increases and empty shelves as they prepare for the upcoming holiday season.
Trump's administration has faced criticism for its handling of trade relations, with business leaders expressing frustration over rising costs and uncertainties. Some companies, including Mattel and Procter & Gamble, have indicated that they may need to increase prices if tariffs remain in place.
In an effort to gauge the impact of tariffs on businesses, the DealBook series has reached out to various companies. One business owner noted that while tariffs affect only a small percentage of their products, the overall economic uncertainty has forced clients to shift from growth strategies to a no-spending mode, significantly impacting their operations.
As the discussions between the U.S. and China approach, the global economy watches closely. Analysts believe that even a modest de-escalation could provide relief, as the trade war has fostered an unfavorable environment for international trade.
In summary, as the U.S. stock market reacts to trade news and the Fed's decisions, the upcoming negotiations in Switzerland represent a pivotal moment in the ongoing trade war. With both sides under pressure, the outcome of these talks could have significant implications for the global economy.
