Stocks recovered as Trump sounded soft on China; Gold slips
Wall Street was also boosted by hopes of two more
25 bps rate cuts and the end of QT by Dec'25; regional banks recovered on
fading concern of asset quality
·
Gold stumbled on fading concern of an all-out
US-China trade war as Trump sounded less hawkish and set to meet Xi next week
Wall Street Futures and Gold were on a roller coaster ride
for the last seven days after President Trump threatened China with 100%
additional tariffs for the restriction of rare earth materials supply, and then
50% additional tariffs on top of all Chinese tariffs for buying Russian oil and
funding the Ukraine war (along with India). Thus, total US tariffs on Chinese
goods would be 180% if we take into account the existing 30% tariffs after the
Geneva trade truce agreement. And if next week's US-China trade talks
eventually fail, then Trump may impose another 100% on top of all these
tariffs!
President Trump's second-term trade war with China
reignited sharply since October 10, 2025, triggered by Beijing's October 9
announcement of tightened export controls on five rare earth minerals (holmium,
erbium, thulium, europium, and ytterbium), effective November 1. These minerals
are vital for U.S. tech, defense, and green energy sectors, where China holds a
near-monopoly. Trump responded by threatening and partially implementing
massive tariff hikes, framing China's actions as a "hostile" betrayal
of an August truce that had reduced U.S. tariffs to 30% (including 20% Fentanyl
tariffs) and Chinese tariffs to 10%.
Trump's
Reality Shows on China go on:
October 10:
Tariff Threat and Trade Truce Collapse
v Trump announced an additional 100% tariff on *all*
Chinese imports (effective November 1, or sooner if escalated), stacking atop
the existing 30% for a potential total of 130%. He also imposed U.S. export
controls on "any critical software" to China.
v Trump's comments (via Truth Social):* "It has
just been learned that China has taken an extraordinarily aggressive position
on Trade in sending an extremely hostile letter to the World, stating that they
were going to, effective November 1st, 2025, impose large scale Export Controls
on virtually every product they make, and some not even made by them. It is
absolutely unheard of in International Trade, and a moral disgrace... Based on
the fact that China has taken this unprecedented position... the United States
of America will impose a Tariff of 100% on China, over and above any Tariff
that they are currently paying." He added there's "no reason" to
meet Xi Jinping soon.
v China called the tariffs a "joke" and
vowed to "fight to the end."
v Gold surged, while stocks slumped on renewed
concern of an all-out US-China trade war: the S&P 500 dropped 2.7%, the
worst day since April.
October 11:
Executive Action and Rhetoric Intensifies
v The White House formalized the tariffs via
executive order under the International Emergency Economic Powers Act (IEEPA).
Treasury Secretary Scott Bessent accused China of aiming to "pull everybody
else down" economically. U.S. imports from China had already fallen to
$194 billion (Jan–Jul 2025) from $239 billion the prior year.
v Trump's comments (Oval Office remarks, reposted on
Truth Social):* "Our relationship with China over the past six months has
been a very good one, thereby making this move on Trade an even more surprising
one. I have always felt that they’ve been lying in wait, and now, as usual, I
have been proven right!"
October 12:
Probes and Ally Pressure
v The U.S. launched investigations into Chinese
shipping practices, imposing initial port fees on Chinese vessels. Trump urged
G7 and EU allies to impose 50–100% tariffs on China, linking it to Beijing's
Russian oil ties.
v No new direct Trump comments, but aides quoted him
calling China's moves a "manifestation of American weaknesses" from
earlier talks. China accelerated trilateral talks with South Korea and Japan on
supply-chain alternatives.
October 13:
Brief De-Escalation Signal
v With a November 10 trade deal deadline approaching,
tariffs were paused pending talks, though Trump maintained pressure.
v Trump's comments (via Truth Social):* "It will
all be fine... the USA wants to help China, not hurt it!!!" –was seen by
the market as a negotiation tactic, it sparked a short covering & market
rebound, but China was not amused and labeled the U.S. stance
"hypocritical."
October 14:
Chinese Retaliation and Port Fees
v China hit back with 125% levies on U.S.
agricultural products (e.g., soybeans) and port fees on American vessels. Trump
vowed no concessions, tying tariffs to the fentanyl crisis and trade deficits
(~$300 billion annually).
v Trump's comments (via aides):* "Where the U.S.
was showing goodwill, China saw a manifestation of American weaknesses."
China accused the U.S. of "threatening to intimidate" the global
economy.
October 15:
Presser and Non-Tariff Barriers
v Trump declared the trade war "already
ongoing" in a White House presser, adding U.S. barriers on Chinese EVs and
solar panels. China threatened a full rare earth embargo.
v Trump's comments:* "We have a 100% tariff...
If we didn't have tariffs, we would be exposed as being nothing." He
accused China of using minerals to "cripple" U.S. manufacturing and
enable fentanyl flows. Tit-for-tat actions raised "all-out war"
fears, with a projected 0.2% U.S. GDP hit from retaliation.
October 16:
Nationalism and Blame-Shifting
v Chinese state media ramped up patriotic messaging
with old propaganda footage, while Beijing accused the U.S. of starting the
spat and expressed openness to talks. U.S. soybean farmers suffered as China
shifted buys to Brazil and Argentina; Trump considered a $10 billion bailout
but prioritized a $20 billion aid package for Argentina, drawing criticism: “I
believe that China purposefully not buying our Soybeans, and causing difficulty
for our Soybean Farmers, is an Economically Hostile Act. We are considering
terminating business with China, having to do with Cooking Oil, and other
elements of Trade, as retribution. As an example, we can easily produce Cooking
Oil ourselves; we don’t need to purchase it from China.
v Treasury's Bessent blamed China's "market
manipulation" and proposed U.S. price floors in affected industries.
October 17:
Sustainability Admission and Market Reassurance
v Trump softened slightly, admitting the 100% tariffs
"would not be sustainable" long-term, while blaming China for the
impasse. He reaffirmed plans to meet Xi at APEC, signaling room for de-escalation.
Stocks rose modestly as investors weighed earnings amid the uncertainty.
Software export bans were formalized.
v Trump's comments (press remarks): The tariffs
underscore a "de-escalatory path" to avoid worsening investor nerves,
though Beijing vowed intensified WTO disputes.
v Trump Says “Looks Like Meeting With Xi Going
Forward”
v Trump said U.S.-China trade negotiations are going
very well and that relations are positive. He confirmed China wants to engage
in talks and emphasized ongoing dialogue, signaling plans to make mutually
beneficial deals.
v Trump also indicated flexibility on the Nov. 1
trade deadline and highlighted coordination with China on broader geopolitical
issues, including discussions related to Ukraine.
v Bessent to Meet China’s He in Malaysia Next Week
v U.S. Treasury Secretary Bessent said he will speak
with Chinese Vice Premier He Lifeng this evening, ahead of a likely in-person
meeting in Malaysia next week. The discussions, involving delegations from both
sides, are intended to prepare for an upcoming meeting between the U.S. and
Chinese presidents. Bessent made the remarks during a White House event on
Friday.
Trump said
in his latest reality shows with Ukraine’s President Zelenskyy:
·
We are getting
along with China
·
Looks like meeting
with Xi is going forward
·
China wants to
talk, and we like talking to China
·
I could move the
China November 1st deadline up if I wanted
China
warned the U.S. not to weaponize Taiwan
Meanwhile, China’s Defense Ministry spokesperson
Zhang Xiaogang on Friday warned the U.S. against arming Taiwan, following
Congress’s National Defense Authorization Act allocating $1 billion for
military cooperation with the island. Zhang said the provisions interfere in
China’s internal affairs, undermine sovereignty, and threaten global stability.
He stressed Taiwan is a “red line,” urged U.S. adherence to the one-China
principle, the three China-U.S. communiqués, and warned against signaling
support for Taiwan independence.
Trump’s
soft tone on China lifted Wall Street Futures, while Gold slid from a record
high
Trump links policies to national security and
fentanyl; China leverages rare earth dominance, with U.S. efforts (e.g., July
MP Materials deal) to build domestic supply lagging. The November 1 deadline looms; a Trump-Xi summit could pivot, but
escalation threatens recession. Beijing appears "unfazed," boosting
exports and nationalism, potentially gaining leverage.
Conclusions:
China is
ahead of the US in the trade & tech war
v Lessons
from Trump 1.0: During his
first term, Trump employed aggressive tactics like high-end chip restrictions
and software export controls to pressure China, but Beijing's "Made in
China 2025" vision propelled decade-long advancements in AI chips, jet
engines, aircraft, and military tech, positioning China at parity or ahead in
key innovations while exposing U.S. vulnerabilities in rare earth minerals
(REMs) security.
v China's
Superior Development Model: China's
state-driven approach—avoiding U.S.-style political paralysis, funding crises,
and over-reliance on private sectors or foreign talent—has elevated it to
undisputed No. 2 superpower status (or arguably No. 1), surpassing Russia/USSR
in economic, tech, and military spheres; it now ranks as the largest arms exporter
globally, outpacing U.S., Russia, France, and UK in affordability and scale.
v Emerging
Tech Dominance: Under its 2035
vision, China leads in adopting EVs, 6G, IoT, AI, and quantum computing, giving
it more "triumph cards" than the U.S.; Trump 2.0 acknowledges this,
shifting from full decoupling to targeted derisking in REMs, APIs/medicines,
electronics, and semiconductors.
v Interdependence as Core Dynamic: Mutual reliance
persists—U.S. on China's affordable scale, China on U.S. innovation—with tariffs
risking GDP drags (e.g., 0.2% U.S. hit); FDI in China halved since 2018, but
full separation is improbable, favoring "managed" ties via dialogues;
APEC (Oct 31-Nov 1) could de-escalate, though EV/chip disruptions loom without
resolution.
U.S.-China
is dependent on each other despite China's advantages.
v Trump's
Likely Blink: Trump's softer
2.0 stance—personal respect for Xi, recognition of China as the U.S.'s
3rd-largest export market and key for MNCs like Apple/Boeing—suggests he'll
concede first, as in past "taco trades"; China's diplomatic restraint
signals no negotiation "under gunpoint," potentially lifting
non-military REM controls while retaining military leverage.
v Inevitable
De-Escalation: As the world's
top two economies (45% global GDP), both nations depend on each other for
prosperity; military-industrial complexes (U.S./China "Deep States")
and shared geopolitical risks will drive détente, averting damage to arms
exports and broader growth—ultimately restoring fragile stability post-November
1 deadlines.
v US aims to the strategic de-risk from China's 70%
global mining and above 90% refining dominance in rare earth materi8als
(critical for tech, defense, EVs); focuses on alternatives amid October 2025
escalations (China's Nov 1 export curbs on 5 REMs: holmium, erbium, thulium,
europium, ytterbium); blends tariffs, investments, alliances—US imports ~70%
from China; not full isolation due to interdependence.
U.S.
strategy is to isolate China globally on the rare earth monopoly
Trump admin 2.0 is now on the back foot over
China’s REMs restriction bouncer, without which the US economy and military
industrial complex may halt. As a counter strategy, the US is now trying to
exert pressure on China by talks of 'isolation' from other major global
democracies. Trump has now suddenly turned globalist from an erstwhile hard
nationalist (vocal for local strategy) and, as the self-proclaimed President of
the global democracies, Trump even indicated that various other countries have
lodged complaints against China for the REM restriction, and if it continues,
all the other major democracies need to boycott China. In brief, Trump is
trying to portray China's alleged restriction of REMs supply to even civilian
usage as a battle between global democracies and autocracies. But China has
strongly refuted the allegation and assured it's open to further discussions on
rampant usage of REMs in military equipment to make the world 'safer', but
assured no restriction on it in civilian usage.
There is a pivotal shift in the escalating
U.S.-China trade & tech war, where rare earth minerals (REMs)—critical for
everything from F-35 jets and EV batteries to semiconductors—have become the
ultimate leverage point. China's virtual monopoly has long been a U.S. vulnerability,
but recent restrictions have flipped the script, forcing the Trump
administration into a defensive scramble. The rhetoric of "democracies vs.
autocracies" is indeed emerging as a counterpunch, blending economic
pressure with ideological framing to rally allies.
Recent
Escalations: China's "Bouncer" and Trump's Tariff Volley
China's
Move (October 9 Announcement):
Beijing expanded export controls on rare earths, adding five more elements
(holmium, erbium, thulium, europium, ytterbium) to the seven already restricted
in April (samarium, gadolinium, terbium, dysprosium, lutetium, scandium,
yttrium). These aren't outright bans but require licenses for any product
containing >0.1% Chinese-sourced REMs, explicitly targeting
"misuse" in foreign militaries or sanctioned entities. Effective
December 1, this hits U.S. defense hardest—e.g., no exports to firms linked to
F-35 production or Tomahawk missiles. This is a "signaling maneuver"
to bolster Xi's hand before his October 31-November 1 APEC meeting with Trump
in South Korea in response to Trump's earlier action to impose AI Chip/tech
export control and Chinese ships' port fees.
After taking a hard lesson from Trump 1.0's
negotiation & bullying tactics, China is no longer showing any proactive
interest in trade talks with the US on US soil. China is now forcing the US to
hold the trade talks in a neutral country. And both are traveling almost the
entire Europe for four rounds of in-person meetings. During his first term,
Trump also tried to humiliate China's President Xi. The Trump admin ensured the
arrest of Huawei CEO Meng in Canada, while Trump and Xi were personally engaged
in a summit sideline trade talks (bilateral dinner meeting).
Thus, China is now adopting a tit-for-tat or
reciprocal approach with a protocol-based diplomacy/trade talks to ensure no
such humiliation for its President Xi. Chinese leaders are not obedient lapdogs
of Trump, unlike most of the other high-profile global leaders; they are
scrambling to visit the White House Oval Office to participate in Trump's daily
reality shows and have to digest nonsense talks with a smiling face to keep
Trump in good humor. On the contrary, Trump is now eager to visit China to keep
Xi in a good mood. Megalomaniac Trump knows who the real boss is!
Trump labeled the REM curbs "sinister and
hostile," threatening 100% tariffs on *all* Chinese imports starting
November 1 (or sooner if escalated), plus export controls on critical U.S.
software to China. He hinted at canceling the Xi meeting (though it was never
formally confirmed) and accused Beijing of violating a fragile Geneva truce
from spring 2025 that had eased prior restrictions.
Beijing slammed the tariffs as a "textbook
double standard," insisting the controls are WTO-compliant and aimed at
national security, not coercion. They accused the U.S. of sparking the flare-up
by expanding entity list sanctions (e.g., on Chinese subsidiaries) and special
fees on Chinese ships. China clarified it's open to talks but won't back down,
with Commerce Ministry spokespeople noting no actual shipments have been
blocked yet—just added bureaucracy. This tit-for-tat echoes the 2018-2020 trade
war but with higher stakes: U.S. auto giants like Ford halted production lines
in June over prior curbs, and defense firms are now stockpiling amid fears of a
full halt.
Trump's
Pivot: From "America First" to "Leader of Democracies"?
Trump's first term and even 2nd term,
till last week, was peak economic nationalism—tariffs as a bilateral cudgel,
"Buy American" isolationism. Now, facing REM vulnerability (U.S.
imports 80% from China, with zero domestic refining capacity), he's dialing up
multilateral pressure, framing it as a clash of systems: free-market democracies
vs. CCP autocracy.
Rhetoric on
Allies' "Complaints":
Trump has publicly stated that "various other countries have lodged
complaints" about China's REM curbs, urging "major democracies"
to join a boycott if restrictions persist. In an October 14 Truth Social post,
he positioned the U.S. as "President of the global democracies,"
warning that China's "monopoly position" holds the world
"captive." Treasury Secretary Scott Bessent echoed this on October
15, floating U.S. equity stakes in allied miners to counter Beijing's
"power grab." Vance and Bessent have been vocal, while Commerce Sec.
Howard Lutnick stays silent—rumors swirl that Trump blames him for provoking
the curbs. Bessent is also trying to point out divisions in China’s core team
for trade negotiations; he said one particular member is too hawkish and
disrespectful in approach. This "globalist turn" is pragmatic:
Bilateral tariffs alone can't break China's monopoly, but coalition-building
could. The EU Chamber of Commerce in China reported license backlogs
post-announcement, hinting at allied frustration.
Why Now?
China's Long Game Pays Off
China waited because it first shattered U.S.
leverage elsewhere—like helium (95% import-dependent in 2022, now <5% via
Russian/Qatari sourcing and domestic breakthroughs). Beijing's 2020-2025 plan
was always to export finished REM products (magnets, not raw ore) by 2025,
turning the monopoly into a moat. Trump's tariffs bought time for this buildup—U.S.
production is still nascent.
Outlook:
Stalemate or Spark?
The APEC meeting looms as a flashpoint—Trump's
"schooling Xi" bravado (à la Ingraham) meets Xi's quiet confidence;
Trump’s daily reality shows vs China’s real show. Trump’s China isolation could
work if allies buy the narrative, but without rapid reshoring, the U.S. risks
self-inflicted wounds. China isn't bluffing; it's executing a decade-long
strategy. Trump's globalist pivot is clever, but portraying civilian REM curbs
as "autocratic aggression" stretches the frame—it's more mutual
assured economic disruption.
Breakthrough
in U.S.-China Trade Tensions: Bessent-He Talks Set for Next Week (October 18)
China’s Xinhua confirmed the agreement for a new
round of talks "as soon as possible," and Bessent quickly followed up
on X (formerly Twitter), announcing an in-person meeting next week to build on
the momentum. On late Friday, October
17, 2025, the US Treasury Secretary tweeted: “This evening, Vice Premier He
Lifeng and I engaged in frank and detailed discussions regarding trade between
the United States and China. We will meet in person next week to continue our
discussions.”
The Call (October 17): Bessent and He discussed
"major issues in bilateral economic and trade relations," including ongoing
frictions like U.S. tariff hikes (threatened at 100% on Chinese imports) and
China's REM export controls. Xinhua described it as "candid," while
Bessent emphasized "detailed discussions" on trade imbalances and
supply chain vulnerabilities. In-Person Talks: Scheduled for next week (likely
October 22-25) in Malaysia, ahead of the APEC summit in South Korea (October
31-November 1). Bessent told reporters it's a chance to "de-escalate"
and negotiate down escalatory measures, expressing confidence in Trump's
rapport with Xi Jinping to steer things "back on a good course." This
feels like a pragmatic off-ramp from the "democracies vs.
autocracies" rhetoric—Bessent's globalist lean helping Trump save face
without full isolation. If they nail a truce in Malaysia, it could tee up a
productive Trump-Xi at APEC.
Conclusions:
v Despite public rhetoric for domestic political
compulsion, at the end of the day, both the US and China are dependent on each
other for development and prosperity. Thus, we may have a preliminary trade
deal between the US and China in the forthcoming APEC meeting, subject to
fruitful discussions between US Treasury Secretary Bessent and his Chinese
counterpart.
v Trump may even withdraw 20% Fentanyl tariffs on
China after the still scheduled late October APEC meeting as an honor to the
great leader & friend Xi, and 'satisfactory' progress of Chinese
authorities in curbing precursor chemicals to make such synthetic opioids.
v Trump has to manage his unconventional or bellicose
policies properly to save his 'Vote Bank' (middle class America) and also 'Note
Bank' (corporate America) to survive his present Trifecta (White House, House,
and Senate); otherwise, he may lose the House in November'26 mid-term election.
v Trump needs Chinese buying support of US farm
products, along with other issues. Trump has virtually no 'Triumph' card
against China except a slim tech advantage, and thus, he is bound to
capitulate, but it will be win-win for both the US and China.
Market
wrap:
Wall Street Futures closed higher Friday, October
17, 2025, on fading concern of an all-out US-China trade & tech war, and
also asset quality of small & regional banks. Regional banks, including
Zions Bancorporation, Western Alliance, Truist Financial, and Fifth Third
Bancorp, recovered after reporting isolated credit issues and posting
better-than-expected reports, easing concerns about broader credit risks;
earlier concerns over regional bank credit losses (NPA) were viewed as specific
and non-systemic. American Express’s strong earnings significantly aided the
Dow’s rally. But Oracle plunged after below expected guidance AI and cloud
growth projections, including $20 billion in AI revenue and $166 billion in
cloud infrastructure revenue by FY30.
Nvidia,
TSMC Produce First U.S.-Made Blackwell Chip Wafer
Nvidia and TSMC announced the first U.S.-produced
wafer for Blackwell AI chips at TSMC’s Phoenix facility, marking a key step in
domestic AI semiconductor production. Nvidia CEO Jensen Huang visited the site
to unveil the milestone. The companies said TSMC Arizona will generate
thousands of high-tech jobs and attract suppliers. While the wafer advances
U.S. chip production, dependence on overseas manufacturing remains, and broader
domestic supply chain development is ongoing, while highlighting risks, including
"the risk of concentrating business with OpenAI and various unforeseen
go-live bottlenecks."
For the
week, the S&P 500 and Dow added 1.7% and the Nasdaq booked a 2.2% rise:
·
Fed pivot-50
bps more Fed Rate Cut and QT end Expectations: The market is now almost fully
discounting 50 bps more Fed rate cuts and QT end by December’25 after Powell’s
speech, followed by dovish Fed talks amid weakening labor market and some
strains on Funding/Money market as SOFR (Secured Overnight Financing rate) 4.3%
edges above effective Federal Funds rate of 4.1% (4.25-4.00%); although it may
be seasonal due to year ending and tax payment related higher fund requirement
·
Trump pivot:
US-China trade truce expectations
·
Government Shutdown: Continued delays of key economic data, although
complicating Fed decisions, the Fed is now compiling various private
data/estimates (proxies), which indicate a weakening labor market overall
Technical
outlook: DJ-30, NQ-100, SPX-500 and Gold
Looking
ahead, whatever may be the narrative, technically Dow Future (CMP: 46400) now has to sustain over 46500 for a
recovery to 46700-47000 and further to 47300/47700*-48000/48300 and
48600/49000-49700/50000 in the coming days; otherwise sustaining below
45300-45000/44900, DJ-30 may further fall to 44200/43900-43400/42400 and
41700/41200-40700/39900 in the coming days.
Similarly,
NQ-100 Future (24975) now has
to sustain over 25100 for a recovery to 25200-25400 and further
25500/25700*-26000/26200 in the coming days; otherwise, sustaining below 25000,
NQ-100 may further fall to 24700/24500-24300/24300 and 23700/23400/23000 and 22600/22400
in the coming days.
Looking at
the chart, technically SPX-500
(CMP: 6700) now has to sustain over 6750 for a further rally to 6800-6850 and
6900*/7000-7500/8300 in the coming days; otherwise, sustaining below 6700, may
fall to 6650/6595 and 6490/6450-6375/6300-6250/6200 and further fall to
6000/5800-5600/5300 in the coming days.
Looking at
the chart, Technically Gold (CMP:
$4365) has to sustain over 4395-4405 for 4425/4455-4475/4500 to 4555-4575 and
even 5000 zone in the coming days; otherwise sustaining below 4385, Gold may
again fall to 4275/4200-4045/4100 and 4000/3925-3890/3770 and
3700/3600-3500/3450 and 3350 levels in the coming weeks.
