China Talks Put Markets At Ease, for Now

A U.S.-China summit in South Korea did just enough, even if it didn’t fix everything that has kept the two sides at odds.

President Donald Trump said his meeting with Chinese leader Xi Jinping on Oct. 30 was “truly great.” (Andrew Harnik/Getty Images)

The first in-person meeting in six years between President Donald Trump and Chinese leader Xi Jinping brought a round of mutual concessions on issues underpinning recent tensions. The de-escalation appeared to be more a win for China than for the U.S., but also took a worst-case scenario off the table for markets.

Still, the trade truce is fragile, temporary, and partial.

Among the highlights: Beijing delayed implementation for a year of expanded restrictions on rare earth exports that would have roiled global supply chains. The U.S. suspended changes to its “affiliates rule” that sharply expanded the number of Chinese companies on a commercial blacklist. China agreed to resume buying U.S. soybeans, and the U.S. halved its 20% fentanyl-related tariffs in return for Beijing doing more to curb flows of precursors.

The U.S. held off on raising tariffs by 100%—a step previewed before the meeting—and delayed any further increases to reciprocal tariffs. Both sides suspended port fees that they imposed on each other. Overall, U.S. China tariffs fell from 57% to 47%, equivalent to a roughly $40 billion reduction in tariff revenue, BofA analysts estimate.

The Supreme Court will hear a case challenging many tariffs on Nov 5.

The takeaway among analysts: This was largely a commercial detente that put the relationship back to about where it was before the April tariff blitz sparked a wave of escalation, with no progress in dealing with the core issues behind the U.S.-China rivalry.

For markets, the lesson may be to pay even less attention to the expected flare-ups and tit-for-tat. Both leaders look happy to find ways to reduce tensions. Markets may treat each bout of turbulence with less fear, especially if, as Xi suggested, the two “stay the right course, navigate through the complex landscape, and ensure the steady sailing forward of the giant ship of China-U.S. relations.” Trump plans to visit China in April, and Xi will later come to the U.S, giving the leaders opportunities to resolve future issues.

But many details are yet to be worked out on problems that have led tensions to flare. Although Trump said the two didn’t talk about letting China buy Nvidia’s more-advanced Blackwell chips, he said that Nvidia CEO Jensen Huang would talk to Chinese officials. That leaves an open question about whether the U.S. will loosen restrictions on other chips and advanced technology.

“It will be substantially more difficult for the U.S. to take meaningful counter-China or derisking actions, since the main lesson coming out of the summit is that the Trump administration will negotiate these actions and is sensitive to Chinese pressure,” says Emily Kilcrease, director of the energy, economics, and security program at the Center for a New American Security and a former U.S. trade official. “The idea of building leverage to force concessions from China has just been proven faulty, and future U.S. threats will be seen as empty.”

Beijing’s leverage may be at its peak, though, analysts note. The U.S. has rushed to sign agreements with Malaysia, Australia, and other allies. A deal with Vietnam is meant to make it tougher for China to reroute its exports through other countries. Reducing U.S. dependence on China could take years, but China’s need for the world to buy its exports makes it vulnerable, too.

“That leads to this ironic negotiating stance in which it seems they need to be more cooperative to reinforce the existing order,” says Logan Wright, a partner at Rhodium Group. While the air of cooperation lasts, investors can turn their minds to other matters.

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