The U.S. stock market took a hit last week as chances of a possible trade war between America and China were rife. However, on Mar 26, possible talks between the United States and China over tariffs and trade imbalances started making the rounds. This helped the Wall Street gain some lost ground.

What Led to the Possible Trade War?

President Trump’s latest announcement of a possible imposition of a $60-billion tariff on  the products imported from China dealt a huge blow to Wall Street last week. Subsequently, China announced to impose an import tariff worth $3 billion on U.S. goods. Per The Washington Post, owing to such formidable announcements, the stock market witnessed one of the worst weeks in years.

Trade relations between the two nations have failed to remain cordial, thanks to Trump’s latest policies. He pledged to reduce the U.S. trade deficit with China and demanded that China must cut the same by $100 billion. In addition to steel and aluminium, tariffs have also been imposed on imported washing machines and solar panels. These are likely to affect China’s economy adversely.

Analysts are of the opinion that Trump’s decisions will not go down well with China and the nation in retaliation may impose tariffs on import of American aircraft as well as U.S. crops since it is one of the biggest buyers of U.S. crops. Given these developments, two of the world’s key economies were almost at the brink of a trade war.

Current Scenario

Following Treasury Secretary Steven Mnuchin’s announcement that the two nations have decided to enter into negotiation talks to avert the trade war, the stock market opened on a fairly upbeat note on Monday. According to a report by The Wall Street Journal, China and America have started arbitration to improve United States’ access to markets in China, which cover wide areas like financial services and manufacturing.

Trump’sletter to China’s economic czar Liu late last week requested for a reduction of Chinese tariffs on U.S. automobiles, more Chinese purchases of U.S. semiconductors and greater access to China’s financial sector by American companies. The news came as a breather to investors as a possible aversion of the trade war seemed to be in the cards. Evidently, the S&P 500 rose 2.7%, Dow Jones Industrial average jumped 2.8% and Nasdaq moved up 3.3%.