While the highly anticipated meeting of the two leaders concluded without a formal agreement last week, Franklin Templeton Institute believes some emerging details suggest tangible progress on the part of the United States.
Writing in a recent note, investment strategist at the firm, Christy Tan, pointed to President Trump’s positive stance on the summit and productive outcomes so far.
In particular, she noted agreements on Chinese purchases of US agricultural products, a reduction of “fentanyl” tariff rates on Chinese exports from 20 per cent to 10 per cent, and “no roadblocks” on Chinese exports of rare earths under an extendable one-year deal.
But beyond China, Tan also pointed to other emerging trade alliances, particularly highlighting South Korea and Japan as positive regional examples where the US has made significant headway in easing trade tensions.
“The positive tone builds on the fruitful outcomes of bilateral trade discussions between the US and South Korea and Japan in recent days.
“Accordingly, despite relatively few details on the US-China discussions, we believe the Trump-Xi summit will be seen as building on progress achieved this week in lowering global trade tensions,” Tan said.
Last week, the US and South Korea reached a broad trade deal, with the two sides set to reduce reciprocal tariffs from 25 per cent to 15 per cent, as was agreed earlier this year.
Specifically, Tan noted South Korea’s pledge to invest US$350 billion in various US sectors, with US$200 billion coming from official sources and US$150 billion coming from private sources into US shipbuilding enterprises. The country has also pledged to purchase US aerospace equipment.
Additionally, back in July, the US agreed to lower tariffs on Japanese exports to 15 per cent – including for autos – sidestepping a potentially devastating 25 per cent tariff for the sector. The agreement was made possible in exchange for Japan’s commitment to invest US$550 billion in strategic US sectors, to increase its imports of US aerospace and military goods, and to purchase US$8 billion in US agricultural exports.
Although none of these outcomes are ideal, Tan emphasised any progress made in easing trade tensions is ultimately positive for global equity markets.
“Against a favorable backdrop of strong corporate profits (e.g., in the ongoing US third calendar quarter reporting season) and a resilient global economy, reductions in trade uncertainty are an added plus,” she said.
China’s ‘self-reliance’
On the other hand, Wenchang Ma, China equities portfolio manager at Ninety One, recently contended that China’s focus isn’t primarily on circumventing US tariffs anyway. Rather, she argued that the country’s diversified trade partnerships and structural reforms are indicative of a broader strategy.
As Ma pointed out, US exports only account for 14 per cent of China’s total – down by more than a quarter over the past decade – with increased investments in Southeast Asia and other emerging markets underscoring China’s central position amid shifting global supply chains.
BlackRock’s most recent weekly market commentary similarly noted the continued strength of China’s export engine, despite tariffs and ongoing threats throughout the year.
While this is partially due to countries front-loading imports before the new tariffs came into effect, the asset manager explained that exports – particularly beyond the US – have become an increasingly key growth driver for China’s otherwise sluggish economy.
Additionally, BlackRock further emphasised that China’s new five-year plan, scheduled for release this week, underscores Beijing’s commitment to economic “self-reliance” and independence from the US and other global powers.
Nevertheless, like Tan, the asset manager agreed that the “no roadblocks” move on rare earths which emerged from the summit should bring some near-term stability to relations between the two countries: “even amid the ongoing competition and broader geopolitical fragmentation rewiring supply chains.”
An uneasy truce
Overall, Tan asserted that the prevailing theme of the moment is one of improving investor sentiment and confidence, leading to broader returns across capital markets.
This trend persists, she argued, despite the US Federal Reserve’s stance that further interest rate cuts are not guaranteed. Rather, the current environment is positive due to strong US corporate and economic fundamentals, and is now further bolstered by easing trade tensions in the North Pacific.
She did, however, admit that the future of US trade policy this year remains unpredictable and “prone to reversal”. Moreover, with the US Supreme Court awaiting to hear oral arguments on the constitutionality of country-level tariffs, future outcomes remain to be seen.
“Depending on their decision (which may not arrive until 2026), US tariff policy could abruptly change again,” she concluded.
