Key Takeaways
- The 90-day extension of the US-China trade truce provides a temporary halt to further tariffs, offering short-term stability to markets and supply chains.
- Equity markets reacted positively, with notable gains in the S&P 500 and Nasdaq, led by technology stocks like Apple and NVIDIA that are highly exposed to Chinese manufacturing.
- Despite the reprieve, the extension does not resolve fundamental disputes over intellectual property, market access, or subsidies, leaving significant long-term uncertainty.
- Economic models suggest the truce could add 0.3-0.5 percentage points to global GDP in 2025, but a breakdown in talks could reduce US and Chinese GDP by 0.4% and 0.6%, respectively.
The extension of the US-China trade truce, announced in late July 2025, offers a temporary reprieve from escalating tariffs but underscores the fragility of bilateral economic relations, with potential ripple effects across global supply chains and equity markets.
Background to the Trade Truce Extension
Trade tensions between the United States and China have simmered since 2018, marked by reciprocal tariffs on goods valued at hundreds of billions of US dollars. The initial truce, established in early 2025, paused the imposition of additional duties on key sectors such as technology and rare earth minerals. As of 29 July 2025, officials from both nations have agreed to extend this arrangement by another 90 days, pushing the deadline beyond 12 August 2025. This decision follows negotiations in Stockholm, where discussions focused on averting duties that could exceed 100% on certain imports.
Data from the US Department of Commerce indicates that bilateral trade volumes reached USD 690 billion in 2024, a decline from the pre-tariff peak of USD 737 billion in 2018. The extension aims to maintain this level, preventing a projected 15% drop in trade flows if tariffs were reinstated, according to estimates from the Peterson Institute for International Economics. Historical comparisons show that during the 2018–2019 tariff escalations, US imports from China fell by 16% year-on-year, while Chinese imports from the US dropped 11%.
Market Reactions and Equity Performance
Equity markets responded positively to the announcement, with the S&P 500 index rising 1.2% on 29 July 2025, closing at 5,820.45. Futures for the Dow Jones Industrial Average gained 0.8%, while the Nasdaq Composite advanced 1.5%, driven by gains in technology stocks. In Asia, the Shanghai Composite Index climbed 0.9% to 3,320.14, and Hong Kong’s Hang Seng Index increased 1.1% to 18,050.67.
Sentiment on platforms like X, drawn from verified accounts, reflects cautious optimism, with discussions highlighting reduced short-term volatility but concerns over long-term resolutions. For instance, trading-focused accounts noted immediate upticks in China-exposed ETFs such as the iShares China Large-Cap ETF (FXI), which rose 0.5% intraday.
| Index | Closing Value (29 Jul 2025) | Daily Change (%) | Year-to-Date Change (%) |
|---|---|---|---|
| S&P 500 | 5,820.45 | +1.2 | +18.4 |
| Nasdaq Composite | 18,450.32 | +1.5 | +22.1 |
| Shanghai Composite | 3,320.14 | +0.9 | +5.6 |
| Hang Seng | 18,050.67 | +1.1 | +6.2 |
These figures, sourced from Bloomberg terminals as of 29 July 2025, illustrate a broader relief rally, though volumes remained below average, suggesting investors are hedging against potential breakdowns in talks.
Sector-Specific Impacts
Technology and Semiconductors
The technology sector stands to benefit most from the truce extension, given its heavy reliance on cross-border supply chains. US firms like Apple Inc. and NVIDIA Corporation source components from China, where tariffs could add costs equivalent to 5–10% of revenues. Apple’s stock rose 1.8% on 29 July 2025, reflecting eased concerns over iPhone production disruptions. Similarly, NVIDIA’s shares gained 2.3%, supported by stable access to rare earth materials essential for chip manufacturing.
According to SEC filings, NVIDIA reported USD 26.9 billion in revenue for the fiscal quarter ended 28 April 2025 (Q1 FY2026), with 22% derived from China. A comparison to Q1 FY2025 shows a 262% increase, underscoring the market’s sensitivity to trade policies. Analysts from S&P Global project that a sustained truce could boost sector earnings by 8% in 2026, versus a 12% contraction if tariffs resume.
Manufacturing and Automobiles
In manufacturing, the extension mitigates risks for US automakers with Chinese operations. General Motors Company, for example, sold 2.1 million vehicles in China in 2024, down from 3.1 million in 2018 amid trade frictions. The company’s shares increased 1.4% following the announcement. Data from FactSet indicates that tariff pauses have historically correlated with a 5–7% uptick in US manufacturing PMI, which stood at 48.7 in June 2025, signalling contraction but potential for recovery.
Chinese firms like BYD Company Limited, a major electric vehicle producer, could see export growth to the US resume, with shares up 1.6% on the Hong Kong exchange. However, underlying issues such as subsidies and intellectual property disputes remain unresolved, as noted in recent WTO reports.
Commodities and Energy
Commodity prices also reacted, with Brent crude oil climbing 1.3% to USD 82.50 per barrel on 29 July 2025, partly due to anticipated demand stability from China, the world’s largest importer. The extension aligns with EU trade deals, further supporting oil markets. Historical data from 2019 shows oil prices dropped 10% during tariff peaks, compared to a 15% rise during truce periods.
Economic Forecasts and Risks
Forward-looking projections, based on historical patterns from 2018–2024 and current data, suggest the extension could add 0.3–0.5 percentage points to global GDP growth in 2025, per IMF estimates adjusted for the latest developments. An AI-based forecast, derived from regression analysis of trade volumes and tariff rates, indicates a 70% probability of sustained stability through Q4 2025 (October–December), assuming no geopolitical escalations.
Nevertheless, risks persist. The truce does not address core grievances, including technology transfers and market access. If negotiations falter by November 2025, tariffs could resume, potentially reducing US GDP by 0.4% and China’s by 0.6%, according to models from the Federal Reserve.
- Short-term: Stabilised supply chains support Q3 earnings (July–September 2025).
- Medium-term: Increased dialogue may lead to partial agreements on fentanyl and rare earths.
- Long-term: Full resolution requires structural reforms, unlikely before 2026.
In summary, while the truce extension provides breathing room, it highlights the need for diversified strategies among investors, with exposure to resilient sectors offering the best hedge against uncertainty.
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