Markets Rally on Signs of Thawing Relations Between World’s Two Largest Economies
Beijing signaled on Friday that it may reopen the door to trade talks with Washington, saying it is still reviewing whether to join negotiations after last month’s sharp tariff increase ordered by President Donald Trump. The statement sparked optimism in financial markets despite China’s firm stance demanding the US remove unilateral tariffs as a precondition for meaningful dialogue. Amid political reshuffling in Washington and mounting economic pressure within China, prospects for resolving the trade conflict remain uncertain.
Beijing’s Statement and Market Reaction: Cautious Hopes for Dialogue
In a written statement, the Commerce Ministry in Beijing said it had “taken note” that senior US officials have repeatedly expressed their wish to speak with China about the tariffs. “The United States has recently sent messages to China through relevant parties, hoping to start talks with China,” the ministry said. “China is currently evaluating this.” The statement urged officials in the US capital to match their words with “sincerity.”
The announcement gave financial markets fresh hope that the trade standoff between the world’s two largest economies might ease. Futures on the S&P 500 Index wiped out earlier losses during Asian hours, and a widely watched yardstick of regional shares moved into positive territory. Hong Kong’s Hang Seng China Enterprises Index climbed more than 1 percent, while mainland exchanges stayed shut for a holiday. In currency trading, the offshore yuan rose 0.3 percent to 7.2566 per dollar, and the Australian dollar extended its rebound.
“The high level of reciprocal tariffs on China is not sustainable, so the market expects the U.S. and China to start negotiating at some point,” said Woei Chen Ho, economist at United Overseas Bank Ltd. “The beginning of negotiations will likely drive market volatility again because it is not expected to be plain sailing.”
Talks would mark a shift in a dispute that has rattled businesses on both sides of the Pacific. Last month, Trump pushed import taxes on a broad range of Chinese goods to levels unseen in 100 years, and Beijing retaliated by raising its own tariffs. The U.S. president has said several times that Chinese leader Xi Jinping needs to contact him first if Beijing truly wants to bargain. Earlier this week, Treasury Secretary Scott Bessent told reporters that China must take the initial step to break the stalemate.
Political Reshuffling in Washington: The Rubio Factor
On Thursday, Trump reshuffled top national‑security posts, expanding Secretary of State Marco Rubio’s duties. Rubio, who became the first US cabinet member sanctioned by Beijing, will act as interim national security adviser while keeping his State Department portfolio. Michael Waltz, the outgoing adviser, will be nominated as US ambassador to the United Nations.
Holding both jobs will give Rubio a louder voice on matters that Beijing follows closely, including Taiwan, which China regards as its own territory. The secretary of state has pledged in the past to counter what he calls China’s “destabilizing actions” in the South China Sea.
In an interview broadcast Thursday night on Fox News with host Sean Hannity, Rubio said Chinese officials are looking for a “short‑term accommodation” and that the US duties are “taking a huge toll” on China’s economy. “The Chinese are reaching out,” Rubio told Hannity. “They want to meet, they want to talk.”
The White House, the Office of the U.S. Trade Representative, and the Departments of Treasury and Commerce did not answer requests for comment on Friday.
Rubio’s appointment to a key national security role, given his known hawkish stance toward China, could complicate prospects for constructive dialogue. His past statements about China and his status as the first US cabinet member placed under Chinese sanctions create additional hurdles for diplomatic efforts.
“Rubio’s expanded national security role might be viewed by Beijing as a signal that the Trump administration isn’t planning to soften its position,” says Alexander Wilson, senior fellow at the Council on Foreign Relations. “This creates additional complexities for resuming meaningful dialogue.”
Economic Pressure in China: Vulnerability Factor or Incentive for Talks?
Economic pressure inside China is mounting. The official manufacturing purchasing managers’ index released this week showed factory activity sinking into its deepest contraction since December 2023. New export orders fell to the lowest level since December 2022 and recorded their steepest one‑month drop since April 2022, when Shanghai shut down to control a pandemic outbreak.
These economic difficulties could serve as an incentive for China to return to the negotiating table, even as Beijing officially maintains tough rhetoric. The economic indicators suggest that the trade war is taking a tangible toll on the Chinese economy, particularly on its export sector, which has historically been a key driver of growth.
“China is in a challenging position,” explains Jennifer Chen, chief economist at Pacific Investment Group. “On one hand, economic data points to the need for easing trade tensions. On the other hand, political considerations require Beijing to show firmness and avoid giving the impression that China is yielding to US pressure.”
China’s Conditions: Tariff Removal as a Prerequisite
Even while hinting at openness, the Commerce Ministry framed its view as unchanged. As a condition for any talks, the ministry said Washington must first “correct its wrong practices” by lifting the unilateral tariffs. “If we fight, we will fight to the end; if we talk, the door is open,” the statement said.
It said, “What China wants to emphasize is that in any possible dialogue or talks, if the United States does not correct its wrong unilateral tariff measures, it means that the United States has no sincerity at all and will further damage the mutual trust between the two sides.”
This demand creates a significant obstacle to starting negotiations, as the Trump administration is unlikely to agree to remove tariffs as a precondition. Previous trade talks between the US and China have often been characterized by such an impasse, with each side insisting that the other make the first move.
“China’s position on the need to remove tariffs as a precondition for talks is more of a starting position than a final requirement,” says Richard Thompson, director of the Asia-Pacific Program at the International Institute for Strategic Studies. “In reality, a compromise is likely possible where both sides take symbolic steps toward each other to create conditions for starting negotiations.”
Prospects and Significance: Uncertainty Remains
Despite signals about possible resumption of dialogue, prospects for resolving the trade conflict between the US and China remain uncertain. Political reshuffling in Washington, Beijing’s strict preconditions, and complex domestic political dynamics in both countries create significant obstacles to meaningful negotiations.
Nevertheless, economic realities may push both sides toward compromise. For the US, high tariffs on Chinese goods contribute to inflation and negatively affect consumers. For China, the trade war exacerbates economic difficulties during a period when the country is facing problems in the real estate sector and slowing economic growth.
“Ultimately, economic interdependence between the US and China may outweigh geopolitical rivalry,” Thompson concludes. “Both economies are deeply integrated through global supply chains, and a prolonged trade war damages both sides. This creates a powerful incentive to find at least a temporary compromise, even if fundamental disagreements remain unresolved.”
A resumption of trade talks, if it occurs, will be closely monitored by global markets and could have significant implications for the world economy. However, given the complexity of relations between the two countries and the current political context, any progress is likely to be gradual and subject to the risk of breakdowns.