US Stocks Set to Rally as Trump Walks Back Europe Tariff Threats
President's announcement of a new 'framework' for trade at Davos sparks relief rally in European equities, boosting sentiment for Wall Street.
U.S. stock futures advanced and global equities rallied on Thursday after President Trump backed away from tariff threats against several European nations, a significant de-escalation in trade tensions that has plagued market sentiment.
Speaking at the World Economic Forum in Davos, Switzerland, the President announced that the administration would suspend planned tariffs and instead pursue a 'framework' for future agreements. The move followed discussions with NATO Secretary General Mark Rutte, with reports linking the reversal to broader strategic negotiations concerning Arctic security and Greenland.
Markets, which have been frequently whipsawed by trade disputes, reacted with immediate relief. In Europe, the pan-continental Stoxx 600 index jumped 1.4%, with Germany's export-heavy DAX and France's CAC 40 also posting gains of 1.4%. The FTSE 100 in London climbed 0.8%.
The rally signaled investor relief for sectors that had been directly in the line of fire. European automakers, a frequent target of tariff threats, saw their shares surge, as the reversal alleviates immediate pressure on their U.S. sales. The announcement provides a reprieve for global supply chains and reduces the near-term risk of a multi-front trade war, which has been a persistent drag on capital investment and corporate earnings.
This détente with Europe stands in contrast to the prolonged and contentious trade war with China. While a 'Phase One' deal was signed, significant tariffs remain in place. The shift in tone regarding Europe suggests a potential willingness to compartmentalize trade disputes as the 2026 U.S. presidential election cycle gains momentum.
Analysts were quick to weigh in on the reversal. Some traders on Wall Street have coined a term for the market's reaction to the President's negotiating style: the 'Taco' (Trump Always Chickens Out) trade, suggesting a pattern of aggressive threats followed by a pullback before the most disruptive measures are implemented.
While the new 'framework' for a deal remains undefined, the immediate threat of a tit-for-tat tariff escalation with the European bloc has been taken off the table. This has been enough to fuel a risk-on sentiment, providing a tailwind for Wall Street and easing fears of another major headwind for the global economy. Investors will now await further details on the nature of the proposed framework and whether it signals a more lasting truce in transatlantic trade relations.