Tariff truce or trade shock?

Business Recorder

2 days ago

The tariff-truce clock is ticking – and global markets are grinding their teeth. In less than two weeks, President Trump will decide whether to extend the temporary pause on China tariffs, and that call alone may dictate the trajectory of trade flows, capital markets, and even whether a Trump-Xi summit materialises later this year.
For now, the financial world is suspended in a strange mix of anticipation and denial. The so-called 'Liberation Day' tariffs, announced earlier this year, triggered the kind of global panic not seen since the peak of Covid-era disruptions. Then came a rebound, timed perfectly with a temporary pause. Now the same pattern looms again. Trump threatens. Markets tremble. Then retreat follows. But this time, the bluff may be harder to sustain.
The Stockholm talks last week produced the first formal signal of an agreed extension, at least from the Chinese side. Beijing's trade negotiator declared the pause was being prolonged, but the US Treasury delegation quickly qualified the statement, insisting that nothing is final until President Trump signs off. In this administration, that's more than a legal formality, it's a policy variable.
The deadline is August 12. If Trump grants another 90 days, it clears the path for a face-to-face meeting with Xi later in the year. If he doesn't, then the 15-30 percent tariffs on Chinese goods — already baked into much of this year's volatility – will return with a vengeance. That, in turn, will force China to respond, and nobody will pretend to be surprised when global equity indices nosedive.
It's no exaggeration to say that financial markets have turned the entire tariff negotiation process into a short-term trading framework. Some call it the TACO trade – Trump Always Chickens Out. Risk-on during threats. Risk-off if he follows through. A dangerous game of geopolitical positioning turned into a cyclical investment strategy.
This time, though, the stakes are different. China, the second-largest economy in the world, is facing sharper economic deceleration than expected. It needs export access. Its rare earth exports have started recovering. Semiconductor controls have been relaxed. Even Taiwan friction has been managed more cautiously. Beijing is clearly setting the stage for concessions. And yet, Trump has the final call and markets know it only too well.
That's why nobody's surprised they're showing early signs of strain. The S&P 500's six-day rally broke just as doubts surfaced about the extension's certainty. Treasuries caught a safe-haven bid. Asian currencies slipped. Trade-exposed stocks led decliners. It's not outright panic, but it's not comfort either.
The irony is that even a successful summit – if it happens – won't by itself resolve the underlying problems. These are two economic superpowers now locked into a longer-term rivalry over everything from AI chips to defence supply chains. What matters in the next few days isn't whether the truce is extended, but whether it signals even the possibility of a more stable framework. Investors aren't betting on peace; they're betting on visibility.
The IMF's modest upgrade of global growth forecasts rests on this very hope. Stronger-than-expected performance from the US, partial stabilisation in China, and easing supply shocks have combined to raise optimism. But every projection now includes footnotes about 'tariff uncertainty' and 'geopolitical risk.' If the pause holds, global equities might keep their ground. If it breaks, a broad repricing is likely.
Also worth watching is how other economies position themselves. Japan and the EU have already rushed to cut their own tariff deals with Washington ahead of Trump's deadline. These are not long-term realignments; they are tactical evasions. Countries are adjusting their export routes and trade portfolios to navigate an unpredictable tariff regime that is both the product and driver of volatility.
Over the next ten days, diplomacy and risk will run in parallel. The US wants guarantees on rare earths and advanced materials. China wants assurance that it won't face arbitrary new penalties. Both sides are posturing for leverage while leaving enough room to backtrack. Whether or not the extension is granted, the moment will be defining. If Trump signs, it reinforces a fragile detente, one that keeps the global economy on edge but operational. If he doesn't, and the market sees no roadmap forward, expect sharper dislocations. A short-term deal may provide relief, but without architecture, volatility is guaranteed to return.
If the summit materialises, it will carry weight by default. But its value will depend on whether it produces a credible framework for navigating trade and strategic rivalry, or merely papers over deep differences. Financial markets, long attuned to theatrics, will be watching for substance – any signal that the world's two largest economies can manage competition without destabilising the global system.
This is what makes the coming fortnight so important. There's a clear inflection point forming – not because the world wants it, but because the two largest economies are once again dragging it there. The cost of escalation is high. The cost of uncertainty, arguably higher. And the market, after all, is not waiting for slogans. It's waiting for signals.
Copyright Business Recorder, 2025