China: Trump Extends 90-Day Trade Truce as US-China Seek Path to Deal

US President Trump Extends 90-Day Trade War Truce

Full-blown US-China trade war averted, but is a trade deal in sight? On Monday, August 11, US President Trump signed an executive order extending the US-China trade war truce for another 90 days. The extension takes the trade war truce through to November, removing the immediate threat of a 145% levy on Chinese goods.

China’s Tariff Commission reportedly stated:

“Will continue 90-day suspension of 24% additional tariff on US goods from 12:01 PM (local time) on August 12, maintain 10% additional tariff rate.”

The extension means that firms, including Nvidia (NVDA) and Advanced Micro Devices (AMD), can continue to export chips to China.

Nvidia and AMD reportedly agreed to pay the US government 15% of their chip sales revenues to China. In return, the US administration would grant export licenses. While expected to hit the firms’ margins, the agreement may set a precedent, with the US administration potentially imposing levies on any company, depending on Chinese demand.

NVDA slipped 0.35% on August 11, while AMD dipped 0.28%.

Meanwhile, China will continue to approve export licenses for rare earth minerals, crucial for any trade agreement.

The extension will allow both sides to iron out remaining issues. Issues may include China buying Russian oil, fentanyl-related levies, and US access to China.

Before Monday’s Executive Order, President Trump pushed for China to boost soybean imports, stating:

“China is worried about its shortage of soybeans. Our great farmers produce the most robust soybeans. I hope China will quickly quadruple its soybean orders. This is also a way of substantially reducing China’s Trade Deficit with the USA. Rapid service will be provided. Thank you, President XI.”

However, there were no immediate reports that this was part of an agreement to extend the 90-day truce.

Are US Tariffs Hitting Demand for Chinese Goods?

The 90-day trade war truce extension could give the US administration time to assess the effect of transshipment tariffs on China’s trade terms.

Trade data for July showed a continued surge in demand for Chinese goods, defying Trump’s tariff measures aimed at dampening dependence on China. The Kobeissi Letter commented on US tariffs and China’s trade terms, stating:

“China’s trade surplus is surging. China’s overall goods trade surplus has reached a record $1.2 trillion over the last 12 months. Their positive trade balance has DOUBLED over the last 5 years. This comes as China’s exports have significantly rebounded, excluding the US. Cumulative 12-month exports to the world, excluding the US, have increased by +$300 billion, to a record ~$3.2 trillion, over the last 18 months.”

The Kobeissi Letter added:

“Additionally, China’s cumulative 12-month manufacturing surplus hit a record $2 trillion, well above the largest surpluses historically seen in Germany and Japan. China is expanding global trade amid US tariffs.”

The bigger question is whether China is rerouting shipments to bypass US tariffs? Economists suggest China is looking to diversify, removing dependence on a single market by building new trade relations and redirecting goods to more countries.

Will China or Southeast Asia Be the Victim of US Trade Policy?

The 40% US tariff on transshipments via Vietnam, and the prospect of a Rules of Origin levy, could provide insights into whether China is rerouting or diversifying. China Beige Book commented on recent trade developments, spotlighting Southeast Asia, stating:

“Manufacturers poured billions into SE Asia in recent yrs to minimise exposure to US tariffs after Trump’s 1st trade war w/China…But US has slashed addl duties on Chinese goods to 30% amid trade talks w/Beijing & imposed tariffs up to 40% on others. Some Chinese producers who stayed put during the initial trade onslaught are feeling smug…Those who opened plants in Vietnam now ‘all regret it…”

Notably, Natixis Asia Pacific Chief Economist Alicia Garcia Herrero also raised concerns about China flooding Southeast Asia with cheap goods, stating:

“The great David Ingles focused on whether Southeast Asia would suffer from the tariffs. That is exactly my concern for Southeast Asia, as multinationals may no longer stop at their ‘China+1’ strategies introduced after Trump 1.0 tariffs. They might have to go further towards ‘Asia+1’ strategies, especially if transshipment tariffs are generally applied. The question is, where else can they go to serve the US market? Mexico might be a good starting point, but certainly not enough.”

Market Reaction:

Trade headlines continue to drive market sentiment. The 90-day trade war truce extension bolstered demand for Mainland China-listed stocks. The CSI 300 and the Shanghai Composite Index edged up 0.03% and 0.01% on August 12, extending their gains from the previous session. Notably, the Shanghai Composite Index has rallied 8.89% year-to-date (YTD), tracking the Nasdaq Composite Index (+10.74%).

Meanwhile, the Hang Seng Index leads the gains, soaring 23.95% YTD, outperforming the Nasdaq and Mainland equity markets.

Outlook

US-China trade headlines and Beijing’s stimulus moves will continue to drive sentiment. Progress toward a trade deal and fresh stimulus may boost market appetite for Hong Kong and Mainland-listed stocks. Conversely, renewed trade tensions and Beijing’s silence on stimulus could weigh on risk appetite.

On Friday, August 15, key Chinese economic data could be crucial. Rising unemployment and weaker retail sales would paint a gloomier domestic demand backdrop, underscoring reliance on external demand. This scenario would expose HK and Mainland equity markets to trade developments. On the other hand, tighter labor market conditions and a rebound in retail sales could ease concerns about US tariff policies affecting China’s broader economy.

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