US TRADE DEAL WITH CHINA
Trade has dominated geopolitics in 2025 with the United States insisting on resetting the terms of trade, which it says were unfair. But despite fears over a trade conflict, market optimism remains constant. The markets believe that new trade deals will be reached and that the global economy will not see any serious damage. Stock prices have thus surged to all-time highs as deals are signed. If a trade deal with China can be struck, would this mark the end of the 2025 trade conflict?
• THE 2025 TRADE WAR: Explainer
In early 2025, markets were roiled by rising trade tensions. US tariffs began on February 1st, with traders expecting similar policies to the earlier Trump administration, focused on China. But a series of moves culminated on April 2nd’s “Liberation Day” when the US imposed tariffs on most countries and high tariffs on Chinese goods that resulted in a brief “tit-for-tat” tariff battle with China. Wall Street pulled back, and oil and stock prices sank.
On April 9th, 90-day pauses were granted to allow negotiations, and some tariffs were relaxed. In June, a partial deal was announced with China. Currently, US tariffs on Chinese goods are 35% and China’s tariffs on US goods are at 10%. The US has also signed trade deals with the UK, progressed towards a final trade deal with India, and resumed negotiations with Canada. On August 7th, the US implemented tariffs against some countries that did not negotiate deals, but those tariffs were considered to be less harmful than originally feared.
• TRADE EXTENSIONS AND TRADE DEALS
The 90-day pauses and relaxations began on April 9th. In June, a partial deal was announced with China. Further meetings between US and Chinese officials set US tariffs on Chinese goods to 35% and China’s tariffs on US goods were at 10%.
On May 8th, the first major trade deal was signed between the US and the UK. Deals with Vietnam, Indonesia, and Japan followed in July. On July 27, the most significant deal, between the US and EU, was signed, with the EU accepting a 15% tariff on its goods. Other deals with South Korea or progress in deals with countries like Mexico are in the works, while the US continues to negotiate with multiple countries.
• MARKET REACTION TO EXTENSIONS
Markets have broadly cheered the extension news with US and Chinese stock prices soaring to record highs. It’s true that stock prices have also been influenced by other factors, including a positive earnings season, the prospect of impending US tax cuts, and the rising chances of a Fed rate cut in September; however, the market appears to have priced in the resolution of trade disputes as countries absorb increased US tariffs. Gold prices have pulled back amid market positivity.
• LATEST TRADE DEVELOPMENTS: US CHINA EXTENSION AND TRUMP/PUTIN MEETING
On August 11, the US officially extended its trade truce with China for another 90 days. China had already stated that a 90-day extension had been agreed to give the two countries time to work on a comprehensive deal. Markets didn’t react, except for slight rises in oil and some metal prices. Without this extension, high tariffs would have been re-imposed, causing negative market reactions, reviving the trade conflict. The tariff issue is also linked to the Russia-Ukraine war. The US has grown impatient with Russia, demanding ceasefire progress. Meanwhile, the US has placed tariffs totaling 50% on India, due to Indian imports of Russian oil. The US stated it could place tariffs on other countries that import Russian energy. An August 8th deadline the US gave to Russia to make progress towards peace passed, and it was swiftly announced that Presidents Trump and Putin will meet in Alaska on August 15th. Progress towards peace in Ukraine is considered positive for stock prices, while if there is no progress, Russia and Russian energy importers could face tariffs, which could send oil and gold prices upwards.
Conclusion
While the US and EU have agreed on trading terms, and now the US and China have prolonged their trade ‘détente’, markets expect these countries will eventually sign a deal, rather than engage in a trade conflict threatening global trade and economic growth. Such positive moves could benefit stocks, commodities, and metals, but if trade talks eventually fail, this could present a serious setback for the markets and the global economy.