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Donald Trump is showing the first real signs of backing down from his hardline trade stance with China, and the markets are breathing a sigh of relief. In what appears to be a calculated search for an exit ramp, the US president has indicated that the punishing tariffs he threatened to impose are unsustainable and confirmed plans to meet with Chinese President Xi Jinping in approximately two weeks. This shift in tone explains why markets have reversed their recent losses, as investors interpret these signals as a potential de-escalation in the prolonged trade conflict.
The meeting is scheduled to take place on the sidelines of the APEC conference in South Korea at the end of October, following a series of unresolved confrontations between the world's two largest economies. In recent weeks, Trump had threatened to impose an additional one hundred percent tariff on Chinese imports starting November first, a move that would have escalated tensions to unprecedented levels since the trade war began. This threat came in response to Chinese restrictions on rare earth mineral exports, which Beijing implemented as retaliation for existing American tariffs.
The trade conflict originated as part of Trump's America First policy agenda, which included imposing tariffs on Chinese goods to reduce the trade deficit and protect domestic industries. China responded with counter-tariffs on American products including soybeans and aircraft. The confrontation has already resulted in approximately twenty percent reduction in bilateral trade and has disrupted global supply chains, particularly in technology and agriculture sectors.
Despite the recent escalation, Trump is now signaling a softer approach. In an interview with Fox Business, he stated that the tariff figure probably won't remain, adding that China forced this step on him and it wasn't a strategic initiative. Later, in a post on Truth Social, Trump wrote not to worry about China and that everything will be fine, describing Xi Jinping as a very respected leader. Treasury Secretary Scott Bessent confirmed that the meeting with Xi is still happening and hinted at the possibility of extending the ceasefire.
This response triggered volatility in markets, with stock indices in the United States and Europe rising following these announcements, while precious metal prices declined slightly. From the Chinese side, the rhetoric remains cautious. President Xi suggested he doesn't want his country to enter a recession and assumes Trump doesn't either, implying a willingness to negotiate. Chinese officials emphasized that the US initiated the conflict and that any solution requires a first step from Washington.
However, Beijing continues diversifying its export markets, including strengthening ties with India and countries in the Global South, which reduces dependence on American markets. Trump has tried to project a tough stance toward Beijing, but the effects of tariffs on the American economy are becoming increasingly apparent. Rising consumer prices, problems importing raw materials, and damage to the tech sector are creating internal pressure. An International Monetary Fund report indicates that tariffs could slow global growth in twenty twenty-five by approximately half a percent.
Political considerations, including midterm elections, may push Washington toward an agreement that eases friction, even if it includes concessions. Meanwhile, the Chinese economy is demonstrating resilience thanks to strengthening exports to other markets and domestic support policies. The question now is whether Trump's apparent search for a face-saving compromise will translate into substantive negotiations or whether this is merely temporary positioning before another round of escalation. For investors and global markets, the upcoming meeting between Trump and Xi represents the most significant potential turning point in the trade war since it began.
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