The recent trade deal between Xi & Trump is at best an unstable equilibrium. Most of the terms released by WH today imply equal give and take between China & US. While China has delayed new export controls on RREs & committed to buying Soybean/other agri goods from US, US has postponed the 50% affiliate rule of the BIS export control regulation for one year. US has also reduced Fentanyl tariff to 10% from 20%. Effective US tariff on China now stands around 35% after all exemptions. But the highlight of the summit was the G-2 reference from Trump on China. Is it a new reality or a temporary truce? We believe US & China has no shared ideology or mutual trust. Hence the G2 phrase is more of a Trump ploy to pamper Xi for the time being. Ttump will visit China in Apr'26. This will potentially define a new world order since we believe Taiwan will see a genuine Chinese effort to annex it in CY27 whether Trump has a deal with Xi or not. Till then both sides are biding their time and hiding their powers. During this truce period of almost 6 months, we might see more Chinese efforts to internationalize RMB. Chinese policy makers see strong RMB as the core of the financially strong nation they aim to build. Though we do not see an outright intention to push for RMB appreciation, but policy agenda might curb devaluation risk. This implies PBOC might not pursue ultra loose monetary policy and fiscal levers might be used more for shifting to consumption model than the current investment driven Chinese model of growth.
