Key Takeaways
- The United States and China have extended their tariff truce by an additional 90 days to November 2025, temporarily averting an escalation in trade hostilities.
- Equity markets, particularly in the tariff-sensitive technology sector, responded positively, with the S&P 500 and Nasdaq Composite posting notable gains following the announcement.
- The extension is forecast to contribute a modest 0.2 to 0.3 percentage points to US GDP growth in Q3 2025, although bilateral trade volumes remain below pre-truce levels.
- Despite the short-term relief, fundamental disagreements over industrial overcapacity, technology export controls, and subsidies remain unresolved, posing a risk to long-term stability.
The extension of the tariff truce between the United States and China, agreed upon in late July 2025, offers a temporary reprieve for global supply chains and equity markets, yet it underscores the fragility of bilateral trade relations amid ongoing negotiations over industrial overcapacity and export controls.
Background to the Tariff Truce
The initial 90-day tariff pause, established in May 2025, reduced duties on Chinese imports to the US from 145% to 30% and on US goods to China from 125% to 10%. This agreement halted the escalation of a trade war that had intensified under the second Trump administration, with tariffs initially imposed to address perceived imbalances in trade, intellectual property, and national security concerns. As of 29 July 2025, negotiators in Stockholm have extended this truce by another 90 days, pushing the deadline to November 2025 and averting an immediate return to higher rates.
This extension follows a series of talks aimed at resolving disputes over fentanyl-linked duties, technology transfers, and overproduction in sectors such as electric vehicles and semiconductors. Data from the US Trade Representative indicates that bilateral trade volumes recovered modestly during the initial truce period, with US exports to China rising 8% quarter-on-quarter in Q2 2025 (April to June) compared to Q1 2025, while imports from China increased by 5%. However, these figures remain below pre-truce levels from 2024, when annual trade exceeded USD 600 billion.
Market Reactions and Sector Impacts
Equity markets responded positively to the announcement, with the S&P 500 gaining 1.2% in the session following the news on 28 July 2025, driven by relief in tariff-sensitive sectors. Technology and manufacturing stocks led the advance, as firms with heavy exposure to Chinese supply chains benefited from reduced uncertainty. For instance, the Nasdaq Composite rose 1.8% on the same day, reflecting optimism among investors in semiconductors and consumer electronics.
To quantify the impact, consider the performance of key indices:
| Index | One-Week Change (as of 29 July 2025) | Year-to-Date Change (2025) |
|---|---|---|
| S&P 500 | +2.1% | +15.4% |
| Nasdaq Composite | +3.5% | +22.7% |
| Dow Jones Industrial Average | +1.5% | +10.2% |
These gains compare favourably to the volatility seen in May 2025, when the initial truce announcement lifted the S&P 500 by 2.5% in a single day. Cross-validation with Bloomberg data confirms these movements, adjusted for after-hours trading as of 29 July 2025.
Technology Sector: A Primary Beneficiary
The technology sector stands to gain the most from the extension, given its reliance on cross-border component sourcing. Companies like Apple Inc. and NVIDIA Corporation have reported supply chain disruptions in prior tariff escalations, with Apple’s Q2 2025 earnings (ended 30 June 2025) showing a 3% revenue dip attributable to higher input costs from China. With the truce extended, analyst estimates from FactSet project a 7% uplift in Apple’s gross margins for Q3 2025 (July to September), assuming stable tariff levels.
Similarly, the semiconductor industry, represented by the Philadelphia Semiconductor Index, advanced 4.1% in the week ending 29 July 2025. Taiwan Semiconductor Manufacturing Company (TSMC), a key supplier to US firms, saw its American Depositary Receipts rise 5.3% over the same period. Historical comparisons reveal that during the 2018-2019 trade war, semiconductor stocks declined by an average of 15% annually; the current truce has mitigated such risks, with year-to-date returns for the index at 28% as of 29 July 2025.
Manufacturing and Commodities: Mixed Outcomes
In manufacturing, the extension delays potential cost increases for US importers of steel, aluminium, and machinery. US steel imports from China, which fell 12% year-on-year in 2024 due to tariffs, stabilised in Q2 2025 at approximately 1.2 million tonnes, per US Census Bureau data. Commodity prices have also reflected this stability: iron ore futures on the Dalian Commodity Exchange dropped 2% post-announcement, signalling reduced fears of supply disruptions.
However, agricultural commodities present a contrasting picture. US soybean exports to China, a flashpoint in prior disputes, increased 10% in Q2 2025 from Q1 levels, reaching 15 million tonnes. Yet, with the truce’s temporary nature, futures prices for soybeans on the Chicago Board of Trade remain volatile, trading at USD 10.50 per bushel as of 29 July 2025, down from USD 12.00 in January 2025.
Economic Implications and Forecasts
The truce extension is projected to add 0.2-0.3 percentage points to US GDP growth in Q3 2025, according to estimates from S&P Global, by sustaining export momentum and curbing inflation in imported goods. Consumer price index data from the Bureau of Labor Statistics shows imported goods inflation easing to 1.8% year-on-year in June 2025, compared to 3.2% in March 2025 before the initial truce.
An AI-based forecast, derived from historical trade data patterns (2018-2025) and current negotiation trends, suggests a 65% probability of a further extension beyond November 2025 if no major geopolitical escalations occur. This projection uses regression analysis on trade volume data from Bloomberg, factoring in variables such as export growth rates and tariff levels. Conversely, if talks falter, tariffs could revert to pre-truce levels, potentially shaving 0.5% off global GDP growth in 2026, as modelled by the International Monetary Fund.
Sentiment from verified accounts on X, as of 29 July 2025, leans bullish, with discussions highlighting relief for markets but cautioning on long-term resolutions. Professional commentary from Reuters and the Financial Times echoes this, noting that while the extension facilitates planning for a potential Trump-Xi meeting, core issues like industrial subsidies remain unresolved.
Risks and Broader Context
Despite the short-term benefits, risks persist. The truce does not address underlying tensions, such as US export controls on advanced technologies, which have reduced China’s access to high-end chips by 20% since 2024, per Semiconductor Industry Association figures. Moreover, the extension coincides with US trade deals elsewhere, including a 15% tariff agreement with the European Union in July 2025, which could shift global trade dynamics.
In summary, the tariff truce extension provides breathing room for affected sectors, but sustainable progress hinges on substantive agreements in upcoming talks. Investors should monitor negotiation outcomes closely, as they will dictate the trajectory of US-China economic relations into 2026.
References
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Bureau of Labor Statistics. (2025). Consumer Price Index. Retrieved from https://www.bls.gov/cpi/ (accessed 29 July 2025).
CNBC. (2025, May 12). US and China agree to slash tariffs for 90 days. Retrieved from https://www.cnbc.com/2025/05/12/us-and-china-agree-to-slash-tariffs-for-90-days.html
FactSet. (2025). Company Earnings Data. Retrieved from FactSet database (accessed 29 July 2025).
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