Markets Sleeping On US-China Trade Breakthrough

(MENAFN- Asia Times) Surprisingly, investors around the world have largely overlooked the positive mood music emerging from US–China trade negotiations. Markets everywhere have yet to price in the upside.

This complacency is striking as the two largest economies inch toward a trade settlement that promises big gains on both sides of the Pacific.

Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have spent months in on-again, off-again discussions with Beijing. This latest round, set for Spain this weekend, however, feels different.

A reciprocal-tariff truce now extends to November. Sensitive issues, including technology transfers, industrial overcapacity and data rules, are finally on the table in detail.

The US trade deficit with China, which stood near $300 billion last year, has narrowed somewhat to $128 billion through July, with officials forecasting at least a 30% decline for 2025 and further contraction in 2026.

Yet global investors remain anchored to a narrative of endless confrontation, holding cash and safe-haven assets as if the only rational stance is defensive. This misjudges the incentives now pulling Washington and Beijing towards accommodation.

For the United States, the political calculus is clear. President Donald Trump faces a 2026 mid-term election with voters still sensitive to prices.

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Easing tariff threats helps contain inflation and gives American companies a clearer view of input costs. US manufacturers benefit when supply-chain uncertainty fades. And exporters-from agriculture to high-end machinery-want fewer barriers to the Chinese market.

A credible agreement would offer the White House a tangible economic win without having to slash monetary policy. The US Federal Reserve dropped rates 25 basis points yesterday, with two more 25-point cuts reportedly on the cards later this year.

China has just as much to gain. Domestic demand is soft, the property sector is still under pressure and capital outflows have accelerated.

Securing reliable access to the US market steadies employment in export industries and supports tax revenues. Political stability is paramount for Beijing's leadership, and progress on trade helps reassure citizens and investors that growth targets remain achievable.

This mutual interest is why negotiations are becoming steadily more productive. Bessent himself has noted that each meeting delivers more substance. That reality undercuts the fashionable claim that US-China trade talks are pure theater.

Investors who dismiss these developments overlook an important asymmetry. Downside risks, such as new tariffs and supply-chain shocks, are well-known and already priced into markets. The upside of even a partial accord is not.

Reduced tariff risk would lower global shipping and logistics costs, ease inflationary pressure worldwide and encourage capital spending that has been frozen for years.

Markets that depend on open trade would be immediate winners. Advanced manufacturing, semiconductors, rare-earth mining and processing, and energy infrastructure could all see a positive re-rating. Asian economies integrated into China-plus-one supply chains would benefit as companies invest with greater confidence.

The cautious response so far reflects habit more than analysis. Years of confrontation have trained investors to expect breakdowns. But evidence on the ground is shifting.

US core capital goods orders are rising, a signal that firms believe the trade environment will soon stabilize. Multinationals are mapping supply networks that assume fewer sudden shocks.

ASEAN nations are attracting record foreign investment as production diversifies but remains linked to China-a sign of long-term planning, not panic.

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The political symbolism of a deal also matters. For Washington, it would demonstrate that tough negotiating can yield results without perpetual escalation. For Beijing, it would showcase pragmatic leadership capable of balancing national pride with economic necessity.

Each government gains a narrative of competence ahead of critical domestic milestones.

None of this suggests an easy, sweeping resolution. Verification and enforcement of any deal will be critical. Markets should scrutinize written commitments on tariffs, technology safeguards and industrial subsidies.

Allied participation, particularly from the European Union and key Asian economies, will determine how durable any US-China agreement is.

However, waiting for perfection before reallocating capital is itself a speculative bet. The opportunity lies not in retreat, but in intelligent re-engagement.

The next phase of global growth could be built on a pragmatic bargain between Washington and Beijing.

Those willing to recognize that a trade accord is not a concession by one side but a mutual gain for the world's two largest economies will be best placed to potentially capture the rewards when pessimism gives way to progress.

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