In Latest Tariff Onslaught, China Isn’t a Target. Here’s Why.

A container ship waiting to berth at a port in Lianyungang, China. (AFP via Getty Images)

It has been a big week for the Trump administration’s tariffs, with the U.S. announcing 100% tariffs on semiconductor chips and additional 25% tariffs on India for its purchase of oil Wednesday and levies on 90 of its trading partners going into effect. But China, the biggest buyer of Russian oil and the country which has the widest trade deficit with the U.S., escaped the latest onslaught.

On Thursday, Commerce Secretary Howard Lutnick told Fox Business that President Donald Trump hasn’t ruled anything out yet in terms of tariffs on other countries that buy Russian oil as he tries to turn up the heat on Russia’s Vladimir Putin for his attack on Ukraine. Lutnick also echoed other administration officials, saying he expects the Aug. 12 deadline for tariffs on China to rise another 34% would be extended. However, he said the final decision rests with Trump, who hasn’t yet announced an extension.

The delay in extending the deadline has raised questions about whether the two sides have hit another speed bump in their complicated rivalry, potentially around export restrictions—on critical minerals access for the U.S. and on advanced technology for China.

Investors and trade experts still expect an extension as the focus inside the administration is on maintaining a truce and securing a summit or in-person meeting between Trump and China’s Xi Jinping this fall in hopes of securing a deal on trade and other fronts.

Trade watchers note Trump’s repeated remarks about his strong relationship with Xi, easing of restrictions on the sale of H20 chips from Nvidia and others to China, and the U.S. recently telling Taiwan President Lai Ching-te to avoid a stopover in New York on a scheduled trip to Latin America.

“Everything is now revolving around the president’s decision he wants big beautiful summit [in Asia in the fall] and big beautiful trade deal,” says Dennis Wilder, senior fellow at Georgetown University’s Initiative for U.S.-China Dialogue on Global Issues and previously the National Security Council’s director of China under President George W. Bush. “They also don’t want to disrupt the rare earth agreement they got with Beijing [that allowed the flow of critical magnets.]”

Wilder says more hawkish members of the administration have been sidelined, compared with in the first term when China hawks Matt Pottinger, then deputy national security adviser, and Defense Secretary Mike Pompeo held greater sway.

“This is going extremely well from the Chinese point of view. Rare earths worked better than they anticipated [as leverage],” says Wilder. “But China’s bargaining chip [on rare earths] loses value over time because, Canada, Australia and everyone else is getting into the game.”

In the interim, though, Beijing is looking to flex its leverage with critical minerals and push for a further easing of export restrictions, including on high-bandwidth memory chips.

Arthur Kroeber, head of research at Gavekal, sees the China talks on a separate track from that with others, driven by Trump’s desire to meet with Xi and the constraint created by China’s leverage on rare earths. “The the thing to watch is how much the latter factor compels the U.S. to make more concessions on export controls.”

That holds for the secondary sanctions on India. “He could choose China or India as a wake-up call to Putin. The president is mad at India [over its unwillingness to make certain concessions in trade talks],” Wilder says. Analysts expects the oil-related tariffs on India to be temporary, and likely negotiated away as the two countries continue to talk trade.

The takeaway for investors is that the chances of this detente between the U.S. and China holding for a bit looks good. “Both sides understand where they are playing the game so unless we get a bizarre Trump reversal, they are on a glide path to a summit,” Wilder says.

If no extension materializes, strategists and policy chiefs caution U.S. stocks could take a hit, at least initially.

For investors in China, like Vivian Lin Thurston, a manager on William Blair’s emerging markets growth strategy, the extensions just add to the uncertainty hovering over business and consumer sentiment in China as the economy is stuck in a multiyear rut. And given the truce, Beijing seems less inclined to step up its stimulus measures to revive the economy. Thurston thinks Chinese stocks may be too complacent about these risks, a reason she is less exposed to China in her strategy, by about three to four percentage points than the emerging markets index.

Write to Reshma Kapadia at reshma.kapadia@barrons.com