Markets rally on US-China deal, and other international trade stories to know this month

Markets surged on 12 May after the US administration announced a "total reset" in trade terms between the US and China, easing months of tariff tensions, the BBC reports.

However, just a week later, that optimism has been tempered as Moody’s downgraded the US sovereign credit rating, reigniting concerns over mounting government debt and long-term economic risks.

The trade agreement cuts US tariffs on Chinese goods from 145% to 30%, with China lowering retaliatory tariffs from 125% to 10%. President Trump cautioned the reductions are temporary and could be reversed if progress stalls.

Following the news, the S&P 500 jumped over 3.2%, with the Dow and the Nasdaq rising 2.8% and 4.3%, respectively, recovering losses since April’s tariff announcements.

Economists at Oxford Economics had lowered the probability of a US recession from over 50% to 35% following news of the deal, and inflation forecasts were also revised downward.

However, optimism was tempered after Moody’s downgraded the US sovereign credit rating, citing concerns over rising government debt and deficit payments.

Pushing US long-term borrowing costs to their highest level since late 2023, the move has intensified investor concerns about the country’s fiscal trajectory. Analysts warn that higher borrowing costs could weigh on future economic growth and add volatility to financial markets.

While the tariff rollback is seen as a major de-escalation, analysts caution that the damage from the trade war – including disruptions to supply chains and weakened business confidence – will take time to repair, CNBC reports.

Many businesses remain cautious, says Reuters, having reported that Apple is shifting most US-bound iPhone production to India and VTech is planning to move all US market production out of China by 2026. However, the trade reset could stall or even reverse the shift of manufacturing from China to India, according to the BBC.

These moves highlight ongoing uncertainty, suggesting that the underlying trade challenges are far from resolved.

Britain and the European Union (EU) have agreed their most wide-ranging reset of ties since Brexit, signing a new deal covering trade, defence and fisheries.

The agreement, reached in London by Prime Minister Keir Starmer and European Commission President Ursula von der Leyen on 19 May, includes UK participation in joint defence procurement, reduced checks on food exports and a new 12-year fishing access arrangement.

It marks Britain’s third trade deal this month, following agreements with India and the US. The country's chancellor, Rachel Reeves, says the Gulf is next.

Despite political backlash at home, the deal aims to ease post-Brexit tensions, simplify cross-border trade, and strengthen security cooperation between the UK and the EU, Reuters reports, reflecting a wider move toward regional collaboration amid growing geopolitical uncertainty.

Speaking at the EU-UK bilateral summit, von der Leyen said: "The message we are sending to the world today is that at a time of global instability and when our continent faces the greatest threat it has for generations, we in Europe stick together."

This comes as European Council President, Antonio Costa, signalled that the UK and EU are also close to finalizing a trade agreement with Gibraltar.

Global retailers are considering raising prices in international markets to offset rising US tariffs. While the move could help protect US sales, it risks reigniting inflation in regions like the EU and UK, where price growth is just starting to stabilize.

Container ship bookings from China to the US have surged following the 90-day tariff truce announcement on 12 May, causing port and factory congestion that could take weeks to clear. Importers are rushing to ship goods before tariffs potentially reset, raising concerns of supply chain disruptions similar to those seen during the COVID-19 pandemic.

Maersk has posted strong first-quarter growth amid a cautious shipping outlook. Q1 2025 revenue rose 7.8% to $13.3 billion, with EBIT climbing to $1.3 billion, driven by improved Ocean and Logistics performance and higher Terminal volumes. Despite a more conservative global container volume forecast, the company is maintaining its full-year guidance.

The Guardian reports a roundup of major US tech deals in the Middle East during President Donald Trump’s Gulf tour, including $600 billion in Saudi commitments to American AI firms. The commitments included the sale of hundreds of thousands of AI chips from Nvidia to Saudi Arabia’s sovereign-wealth-fund-backed startup Humain and a $20 billion investment by Saudi Arabia’s DataVolt in US AI data centres and infrastructure, among others.

US Treasury Secretary Scott Bessent said tariffs could revert to the 2 April levels – 10% on most imports plus reciprocal retaliatory levies – if countries fail to negotiate in good faith. This marks a tougher stance as trade talks remain tense, reports the Financial Times.

The European Commission has cut its eurozone growth forecast to 0.9% for this year, down from 1.3%, citing the global trade war and ongoing uncertainty. Growth is expected to pick up to 1.4% in 2026, but remains below earlier estimates.

Following a record Asian harvest, global rice prices have dropped to multi-year lows. Prices are unlikely to rise soon as India’s stronger currency and large stockpiles keep prices steady. Cheaper rice benefits consumers but deepens pressure on Asian farmers, who grow nearly 90% of the world’s supply.

Thailand is increasing tax breaks for small and medium businesses hit by US tariffs, according to Bloomberg. These companies can now get a full five-year corporate tax waiver on investments in upgrades, up from a three-year exemption with a 50% limit.

Los Angeles is the US's largest port. Following the trade agreement that cuts US tariffs on Chinese goods from 145% to 30%, there was a recent surge in container ship bookings from China. Yet a long-term drop in shipping is still a concern for the port. The following video explores the impact:

China’s record soy imports from Brazil in early 2025 highlight deepening trade ties as US tensions linger - but at what environmental cost? With Brazil’s production surging to meet demand, concerns are growing over deforestation in the Cerrado. Can this booming partnership balance profit and sustainability?