Dow Dips as U.S.-China Trade Tensions Flare, Despite Cooling Inflation in April

U.S. stock markets slipped Friday as renewed friction in U.S.-China trade relations overshadowed encouraging inflation data, unsettling investor sentiment and adding fresh uncertainty to global markets.

The Dow Jones Industrial Average fell over 120 points, while the S&P 500 dropped 0.6%. The Nasdaq Composite also opened lower by 0.4%, reversing Thursday’s gains that had been driven by strong performance from tech heavyweight Nvidia.

The downturn came shortly after former President Donald Trump accused China of "totally violating" its trade agreement with the United States. The statement, posted on Trump's Truth Social platform, reignited concerns over tariffs just as a federal appeals court temporarily reinstated Trump-era tariffs—a move that could have broad economic implications if the dispute escalates further.

“I made a FAST DEAL with China in order to save them from what I thought was going to be a very bad situation, and I didn’t want to see that happen,” Trump wrote on Truth Social. “Because of this deal, everything quickly stabilized and China got back to business as usual. Everybody was happy! That is the good news!!! The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!” - Donald Trump.

Meanwhile, U.S. inflation data offered a rare dose of optimism. The core Personal Consumption Expenditures (PCE) index, a key inflation gauge monitored by the Federal Reserve, rose 2.5% year over year in April, in line with economist expectations and marking its lowest level since March 2021. Headline PCE inflation also came in lower than forecast, rising 2.1% versus the 2.2% expected.

Despite the positive inflation signal—which typically boosts risk assets like equities and cryptocurrencies—the market struggled to maintain momentum amid trade uncertainty. According to U.S. Treasury Secretary Scott Bessent, negotiations with China are currently “a bit stalled,” adding to fears of a drawn-out conflict that could weigh on global economic growth.

Trump’s renewed push for tariffs is already facing legal challenges. A recent ruling from the Court of International Trade, which blocked key parts of the tariff policy, has been put on hold by an appeals court. The White House has hinted it may take the issue to the Supreme Court, with analysts warning that overturning the ruling is critical to avoid what could become a $2 trillion shortfall in Trump’s fiscal plans.

Still, markets remain resilient on a broader scale. The Nasdaq is on track for a 10% gain in May, while the S&P 500 is heading for a 6% monthly increase, and the Dow is expected to close the month up 4%.