NEW YORK (CNNMoney/CNNNC) – Chinese President Xi Jinping is giving Wall Street a lift.
The Dow rallied 500 points at the open Tuesday after Xi said in a speech that the Chinese government plans to “significantly lower” tariffs on imported cars as part of efforts to further open up China’s economy. The S&P 500 and the Nasdaq each climbed more than 1%.
Automakers helped lead the charge. GM, Ford and Tesla all gained ground.
Xi’s speech cooled down the temperature on trade tensions between the United States and China and moved the ball back to President Trump.
Trump has proposed tariffs on up to $150 billion of Chinese goods. In retaliation, China said it planned to put $50 billion in tariffs on US planes, cars and soybeans.
“The Xi speech could have gone one of two ways: escalation of trade war of words or conciliatory,” said Art Hogan, chief market strategist for B. Riley FBR. “It went with the latter and the market is pleased with that.”
The United States-China spat has roiled markets in recent weeks.
Investors fear a full-blown trade war could break out between the world’s two largest economies and slow global economic growth.
Trump complained as recently as Monday about China’s 25% tariff on foreign cars.
“Does that sound like free or fair trade,” Trump tweeted. “No, it sounds like STUPID TRADE – going on for years!”
Lowering barriers on imported cars “could provide Trump with an opportunity to back down from his tariff threats while claiming a victory of sorts,” Capital Economics’ Julian Evans-Pritchard wrote in a research note.
Xi didn’t mention Trump or the United States in his speech, but he stressed the need for dialogue and warned against a “Cold War mentality.”
Although Xi said lowering tariffs on imported cars were part of “a new phase of opening up” China, the Chinese government has mentioned the plan before. When Trump visited China in November, Chinese officials pledged to “gradually and properly” reduce tariffs on imported vehicles. They didn’t give a specific time frame.
“There was little in Xi’s speech that we haven’t heard before,” Evans-Pritchard said. “What he has done, however, is cleverly combined existing reform pledges into a single package that Trump could feasibly point to as a victory.”
Investors will now wait to see how the administration responds.
With midterm elections approaching in the fall and Trump’s Midwest farm base caught in the middle of the US-China fight, “Trump will gladly take any bone that the Chinese throw his way,” said Ed Yardeni, president of Yardeni Research. Trump admitted Monday that Chinese tariffs may hurt farmers, but said “we’ll make it up to them.”
Legal developments have also impacted stocks.
The Dow lost most of its gains at the end of the day Monday as the FBI raided Trump personal lawyer and confidant Michael Cohen’s office. The market recovered Tuesday.
“Everybody slept on it and recognized that wherever this leads it’s not likely to have a significant economic impact,” Yardeni said.
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