Financial markets registered a modest relief rally late last week after former president Donald Trump signaled a softer line on threatened tariffs on Chinese imports. U.S. benchmarks closed higher, with the Nasdaq, the Dow and the S&P 500 each up about 0.5%, a coordinated move that traders described as a short-term re-pricing of trade risk rather than a wholesale resolution of U.S.-China tensions.

In a television interview, Mr. Trump said the extra 100% charge on goods from China that he has threatened to introduce at the start of November wasn’t sustainable and that the United States was “going to do fine with China.” Investors greeted the comments as a reduction in the probability of a dramatic, immediate levy on a broad swath of imports—an outcome that would have imposed an economically large tax on both U.S. consumers and companies that rely on intermediate goods from China.

The market response was visible across major equity indices and in early futures trading, where the Dow showed modest gains ahead of the opening bell. The move reflected the sensitivity of asset prices to trade-policy signals: tariffs of the magnitude threatened would effectively double duties and, by increasing input costs, could squeeze corporate profit margins and add to consumer price pressures at a time when inflation remains a central concern for policymakers and investors.

Economists and strategists note that while a headline retreat in tariff rhetoric reduces the immediacy of downside risks, structural policy uncertainty remains a persistent drag on investment planning. Even the prospect of temporarily postponed measures creates complexity for global supply chains and corporate procurement decisions. Companies that have been diversifying sourcing away from China will weigh the benefits of re-shoring or near-shoring against the costs of reversing recent adjustments.

The episode underscores a broader trend in markets over the past several years: political signals and executive pronouncements have become a key, sometimes dominant, driver of short-term volatility. For long-term investors, the important variables are whether trade frictions become more predictable and whether any policy shifts are embedded in durable rules rather than episodic threats. If tariff threats are repeatedly floated and then deferred, firms face an added premium for operational flexibility, which can depress capital expenditure and dampen potential productivity gains.

Beyond equities, the implications for inflation and the Federal Reserve’s policy path are nontrivial. Large, sudden tariffs would likely have transmitted into higher consumer prices and complicated the central bank’s task of returning inflation to target. Conversely, a lower near-term chance of abrupt tariff imposition can marginally lower the upside risk to inflation expectations, a factor markets watch closely for interest-rate pricing.

For now, investors appear to be treating the latest comments as temporary relief rather than a long-term settlement. Market participants will be watching subsequent policy moves, administration signals and any concrete executive actions as they reassess the odds of sustained trade escalation or a more stable bilateral framework that would temper one of the economy’s most potent geopolitical risks.