Tariffs, Talks, and Tension: Can the US–China Trade Truce Hold in 2025?

The US-China trade talks 2025 have reached a critical inflection point, one that could either stabilise a shaky global economy or plunge the world back into a costly US–China trade war.  

In June, negotiators from both nations emerged from high-stakes meetings in London with a provisional framework to revive stalled trade negotiations with China, following a fragile 90-day tariff truce struck in Geneva.  

But with a third of that window already gone, tensions remain high over China tariffs, rare earth exports, AI chip restrictions, and student visa policies. 

US Commerce Secretary Howard Lutnick framed the talks as a reset, with China signaling it may accelerate rare earth export approvals, while the US hinted at easing select export controls, a major shift in ongoing US trade policy.  

Global markets reacted with cautious optimism: Asian equities edged higher after months of volatility sparked by tariff threats and escalating policy friction. Yet the clock is ticking. With only 60 days remaining in the truce, and thorny issues like unfair trade practices, industrial overcapacity, and fentanyl precursor chemicals still unresolved, the threat of renewed escalation looms large.  

As US trade policy increasingly blurs the line between economic strategy and national security, the impact of tariffs on markets, from equities to commodities, is already being felt. 

Here, we’ll unpack the deeper forces behind the US-China trade war, what’s truly on the table in the 2025 negotiations, and how global trade developments can influence market sentiment and economic expectations. 

Key Points 

• US–China trade talks 2025 remain fragile, with tariffs and tech controls still unresolved. 

• Markets show high sensitivity to every trade headline and negotiation outcome. 

• A trade deal or escalation could significantly impact global supply chains and sector performance. 

From trade war to trade watch – A brief history 

The US–China trade war has evolved through distinct but interconnected phases, starting with its aggressive launch during President Trump’s first term in 2018. That period saw sweeping tariffs imposed on hundreds of billions in Chinese imports, met with swift China tariffs in response.  

The conflict rattled global markets and supply chains until a temporary pause came with the 2020 Phase One deal, in which China agreed to increase purchases of U.S. goods and improve intellectual property protections. Under President Biden, tensions cooled somewhat, tariffs remained in place, but new ones were avoided.  

Instead, US trade policy shifted toward multilateralism and targeted export controls, particularly around sensitive technologies like semiconductors and AI chips. While this delivered a degree of stability, fundamental disagreements over unfair trade practices and market access continued to simmer beneath the surface. 

Fast forward to 2025, and tensions have reignited under Trump’s return to office. On April 2, the US administration imposed a universal 10% tariff, a move referred to in some media as ‘Liberation Day’ on nearly all imports, with higher rates targeting Chinese goods, triggering a sharp market sell-off between April 2–10 ^[1]. Global indices tumbled, and retaliatory tariffs from China pushed effective rates above 125% ^[2].  

Mounting economic pressure forced both sides back to the negotiating table, leading to a de-escalation in May through a 90-day tariff truce in Geneva. This was followed by a framework agreement in London in June, focused on resolving disputes over rare earth minerals and export controls on advanced technology.  

Still, with only 60 days left in the truce and structural issues unresolved, the US–China trade talks 2025 remain precarious. For those observing global trade uncertainty, understanding how tariffs influence market dynamics and policy direction has become increasingly important. 

What’s on the table in 2025? 

The US–China trade talks 2025 are entering a high-stakes phase, with both sides trying to avoid a renewed trade war while navigating issues tied closely to national security and industrial competitiveness.  

The Geneva truce and London framework have calmed markets temporarily, but key topics remain unresolved—particularly tech export controls, electric vehicle (EV) tariffs, clean energy subsidies, and intellectual property rights. The US continues to restrict semiconductor exports, while China has selectively relaxed rare earth mineral licensing, though military-use materials are still off the table. 

Tariff levels are under review, with the US easing rates from 145% to around 30% and China scaling back to 10%. But with only 60 days left in the truce, pressure is mounting to strike a more permanent deal.  

While the diplomatic tone has shifted from confrontation to cautious cooperation, politically sensitive issues like fentanyl precursors and market access still pose major obstacles. Whether these talks lead to rollback (or another escalation) remains uncertain. 

The stakes are amplified by the broader macro backdrop. With the Fed holding interest rates at a relatively higher level and comments from the board that signal they’re in no rush to cut in 2025, another tariff shock could strain an already fragile global economy.  

In a higher-for-longer interest rate environment, understanding what happens when interest rates stay high and how US trade policy intersects with global markets is critical. Historically, tariffs have shown potential to influence markets in ways similar to interest rate shifts. 

Category	2024 Import Value	Current US Tariff Rate
Electrical machinery & electronics (smartphones, chips, laptops)	~$128 billion (≈28% of total imports)	~30% general tariff; exemptions for key electronics under truce
Machinery & mechanical appliances	~$85 billion (≈19%)	~30% (Geneva/London truce)
Rare-earth minerals & magnets (critical for EVs & defense)	~$2 billion	~10% (civilian use) under London framework, military use still restricted

Markets on alert – How trade talks move prices 

Markets have consistently reacted with high sensitivity to US–China trade war developments, a pattern first seen during the initial wave of tariff battles in 2018–2019. In May 2019, when President Trump threatened to raise tariffs on $200 billion worth of Chinese goods from 10% to 25%, the S&P 500 Index fell more than 4% in just a few sessions ^[3].  

A similar market jolt occurred in August 2019 when China responded with new tariffs and Trump tweeted about raising duties even further, sending the Dow down over 600 points in a single day ^[4]. Conversely, markets rallied in December 2019 when both sides signalled a Phase One deal was near.  

The Nasdaq 100 Index reached new highs as markets responded to signs of a temporary resolution. These episodes illustrate how trade-related developments have often triggered sharp market movements, with threats typically prompting declines and signs of resolution supporting short-term recoveries. 

The S&P 500 Index experienced a market cap decline of approximately US$6 trillion over a two-day period following Trump’s Liberation Day announcement 

That same pattern repeated in 2025. In early April, The tariffs announced on April 2 triggered a sharp two-day market decline, wiping out over US$6 trillion in global equity value. But once the Geneva truce was announced on April 9, cutting tariff rates and reopening talks, the S&P 500 Index recorded a notable 9.5% single-day gain following the announcement.  

The June announcement of a provisional trade framework brought calmer markets, but gains were modest as investors remained wary. These case studies show how short-term market volatility often overshadows fundamentals during geopolitical uncertainty.  

And with higher for longer interest rates still anchored by Federal Reserve policy 2025, each trade-related headline can influence market sentiment. Monitoring policy developments has become a key part of assessing short-term volatility. 

Sector spotlight – Who wins or loses if talks break down? 

If US–China trade talks 2025 collapse, the tech, auto, agriculture, and manufacturing sectors would be hit hardest. In tech, renewed export restrictions on semiconductors and limited access to rare earths could further strain supply chains and slow AI development.  

Chipmakers like Nvidia and suppliers in Taiwan remain vulnerable. In autos, US tariffs of 100% on Chinese EVs and batteries could disrupt pricing and availability, while China’s overcapacity adds pressure. For US farmers, China’s 10–25% tariffs on soybeans are already dampening exports and prices, with growers calling for resolution before the next harvest cycle. 

Manufacturers, especially those dependent on steel, machinery, and electronics, face increased costs and continued uncertainty. Many are already shifting production to ASEAN or Mexico in response to prolonged tariff risks.  

Corporate commentary during earnings calls has highlighted supply chain resilience and concerns over potential margin pressure amid ongoing trade tensions. If negotiations were to break down, the potential ripple effects could be widespread and affect various sectors. 

Global spillover: Trade talks beyond borders 

The effects of the US–China trade talks 2025 extend far beyond the two superpowers, with ripple effects across the European Union,  ASEAN, and Latin America. In Europe, unresolved US tariffs on Chinese goods are distorting trade patterns, raising concerns about market flooding and supply chain competitiveness.  

The EU has responded cautiously, launching its own anti-subsidy probes while walking a fine line between alignment with US policy and maintaining access to Chinese markets. In Latin America, exporters of raw materials like copper and soybeans are closely tracking tariff decisions, as demand shifts from China and the US could swing commodity prices and trade balances quickly. 

In ASEAN, Vietnam has emerged as a focal point. Once a key winner from US decoupling with China, Vietnam now faces potential US tariffs amid concerns about transshipment and trade imbalances. While its officials have signaled willingness to tighten trade practices, any escalation could derail its export-led momentum.  

India, meanwhile, is leveraging the moment, positioning itself as a strategic alternative for supply chains and manufacturing. With trade talks underway for a bilateral deal with the US, India stands to gain, but it must balance US demands with domestic sensitivities.  

As currency and commodity markets react to every headline, it’s clear the outcome of US–China trade negotiations will shape not just bilateral ties, but the broader global economic landscape. They are a key driver of cross-border capital flows, inflation risks, and emerging market performance in a still-fragile global economy. 

Will 2025 be a turning point or a reset? 

As 2025 unfolds, Some analysts speculate the US–China trade talks may evolve along one of several possible scenarios. The first is re-escalation, where unresolved issues, tech controls, rare earths, EV tariffs, lead to renewed tariff rounds and market instability.  

The second is managed détente, with incremental rollbacks and evolving frameworks that stabilise trade relations without fully resolving core disputes. The third is structured de-risking, where both nations engage in mutual economic decoupling in sensitive sectors, prompting a long-term realignment of global supply chains. 

But diplomacy doesn’t happen in a vacuum. The recent Middle East escalation, marked by strikes between Israel and Iran, tanker threats in the Strait of Hormuz, and a spike in oil prices, has reignited inflation fears.  

The Fed’s higher for longer interest rate stance, reinforced by elevated oil, is reducing central banks’ flexibility, amplifying risks that trade disruptions could feed into inflation and hinder growth. In this volatile environment, short-term market reactions to headlines often overstate the trajectory.  

For market observers and policymakers, the challenge lies in distinguishing structural trends from short-term noise driven by geopolitics and headlines. 

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