On Sunday, President Donald Trump sought to calm nerves in a post on Truth Social, following his announcement on Friday that he will impose an additional 100% tariff on China and limit U.S. exports of software. 

“Don’t worry about China, it will all be fine!” he wrote. “Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”

Meanwhile, Vice President JD Vance told Fox News’s Sunday Morning Futures that the U.S. is willing to be reasonable if China is too, though he insisted Trump has the upper hand with “far more cards” than Beijing holds.

The shift in tone contrasts with Trump’s fiery rhetoric on Friday as he lashed out at China for its new export controls on rare earths, which are critical inputs across a range of industries.

“Market participants appear to be leaning into the TACO trade once more, fueled not only by what we’ve seen in the recent past, but also by conciliatory remarks over the weekend from both President Trump and Vice President Vance, suggesting that Friday’s announcement of additional 100% tariffs on Chinese imports are likely to be little more than a negotiating tactic,” Michael Brown, senior research strategist at Pepperstone, said in a note on Sunday.

Futures tied to the Dow Jones industrial average surged 382 points, or 0.84%. S&P 500 futures were up 1.27%, and Nasdaq futures jumped 1.79%.

The yield on the 10-year Treasury tumbled 8.9 basis points to 4.059%. The U.S. dollar was up 0.04% against the euro and up 0.48% against the yen. Gold climbed 1.43% to a new high of $4,057.50 per ounce. U.S. oil futures rose 1.29% to $59.66 a barrel, and Brent crude gained 1.32% to $63.56.

Trump had previously imposed 145% tariffs on China, then put them on hold to allow negotiations to play out. A similar pattern played out with other trade partners like the European Union, causing Wall Street to dismiss maximalist threats with the TACO (Trump always chickens out) trade.

Brown said Trump’s new China tariff, which would go into effect Nov. 1 and bring the overall level to 130%, appears to be another example of his “escalate to de-escalate” strategy.

“Assuming that this is another ‘TACO’ situation, and some clarity on that front is obtained before too long, then this is likely to prove another dip in equities that should be viewed as a buying opportunity, with the path of least resistance continuing to lead higher, if in somewhat choppy fashion,” he added.

At the same time, the Federal Reserve’s shift back to rate cuts amid still-solid economic growth should continue to boost the dollar, which will likely shrug off tariff threats, Brown predicted.

Similarly, market veteran Ed Yardeni, president of Yardeni Research, also sees the U.S. and China pulling back from the precipice.

“If neither side were to blink, the U.S. and Chinese economies would lead the global economy into a deep recession, if not a depression,” he wrote in a note on Sunday. “But we expect that both sides will blink very soon given the extremely adverse consequences of a trade war between the world’s two biggest economies.”

For its part, Beijing remained defiant, with the commerce ministry saying Sunday that China doesn’t want a tariff war but is also not afraid of one. It also said the export controls are not a ban on rare earth shipments but are a sovereign right.

But China’s new rare earth export policy ups the ante well beyond another tit-for-tat exchange in the trade war against the U.S.

Dean Ball, who served as a senior advisor in the White House Office of Science and Technology Policy earlier this year, wrote on X on Saturday that the policy gives Beijing the power to “forbid any country on Earth from participating in the modern economy.”

Dali Yang, a political science professor at the University of Chicago, sounded a similar alarm in a post on Sunday, saying the move marks a decisive moment that reveals what a China-led order might look like.

Looking beyond rare earths, it’s one that leverages control over strategic materials and technologies to prop up global influence.

“China is effectively saying: ‘We control the arteries of high-tech civilization.’ The rest of the world now sees that message clearly—and is scrambling to build new circulatory systems,” Yang wrote.