Dialogue over disruption: Trump and Xi reinforce a path of stability

The second meeting this year between Donald Trump and Xi Jinping again attracted considerable global attention. In the same vein as the previous meeting in May, symbolism surrounding the meeting was notable. The language used by both governments reflected the significance attached to the meeting, with China calling it “unprecedented” and the US describing it as “historic”.

There were no major policy breakthroughs (as expected by the markets). But that should not obscure the meeting’s main significance. Investors were looking for continued commitment by both sides to maintain engagement. And they were not left disappointed – the two leaders reaffirmed a course of gradual stabilisation. Moreover, Trump and Xi are expected to meet twice more in 2026, at the The Asia-Pacific Economic Cooperation (APEC) summit in November and the Group of Twenty (G20) forum in December.

We believe strategic stability between the two largest economies remains an important outcome in its own right. This is because for investors in Chinese equities, it signals a gradual reduction in geopolitical uncertainty and, by extension, a moderation of the risk premium that has weighed on the asset class in recent years.

Trade truce extension

The most tangible outcome was a two-month extension of the existing trade truce that rolled back some of the most punitive tariffs and paused restrictions related to rare earth exports to 10 January 2027. This gives negotiators more time to work towards a broader agreement.

The two countries also supported more favourable tariff treatment for around US$30 billion of non-sensitive goods in each direction, and continued discussions on agriculture and market access. A new ‘Board of Investment’ is tasked to identify investment opportunities and address investment-related impediments between the two countries.

AI dialogue

The two sides agreed to hold a formal AI (artificial intelligence) dialogue and establish an official communication channel for AI-related issues, particularly around safety and incident reporting. But given US leadership in advanced AI technologies and China’s restricted access to leading-edge chips and foundation models, Beijing is unlikely to constrain its own AI development ambitions, which remains strategically important for economic competitiveness and global adoption of Chinese technology.

President Xi said that the US and China have an obligation to manage the development of artificial intelligence as “leading nations” in the industry. “We have both the capability and responsibility to develop and manage AI for good and ensure that the development of AI is always under human control and serves the well-being of the people.”

Mutual dependence is keeping tensions in check

• Energy security

Notably, both sides agreed that Iran should remain non-nuclear and that international waterways should remain open to free navigation. While these discussions produced few headline announcements, they reinforced the importance of continued communication on issues that carry significant implications for global trade flows, energy supply and market stability.

While China is the world’s largest crude oil importer, it is also the second largest exporter of refined oil products,¹ making it a major force on both the demand and supply side in oil markets. The US called for China to produce more refined petroleum products. This is unsurprising given the recent significant increase in refining margins, making it more profitable to turn crude oil into fuels such as petrol (gasoline) and diesel. Increasing the global supply would serve to ease global inflationary pressures. China’s refined product exports have already accelerated: in August alone, China exports of refined oil products rose 13% year-on-year.²

• Rare earths

The US is highly dependent on Chinese supply chains for many rare-earth products, which are critical for the production of AI hardware, renewable energy infrastructure, electric vehicles and advanced manufacturing. Relating to China’s restrictions on exports of certain rare earths and related materials to the US, the White House indicated that talks would continue with the goal of restoring shipments to “appropriate levels”. To date, China’s export volume of rare-earth products has remained steady versus prior years.

China’s new growth drivers are creating opportunities

The meeting reinforced a gradual stabilisation pathway, with the potential for lower geopolitical risk to improve earnings visibility, company valuations and access to capital.

China’s growth model is changing, led by five new drivers:

1. Technology-led growth (AI, semiconductors, electric vehicles and biotechnology);
2. Coordinated policy support (monetary, fiscal and industrial policy);
3. Consumption shift (services and higher-quality consumption, younger generation, lower tier cities);
4. Export diversification (e.g. Belt and Road Initiative (BRI), with around 150 participating countries across Africa, Asia, Europe, Latin America, and Oceania, Association of Southeast Asian Nations (ASEAN); and
5. Engineering excellence (commercialise innovation at scale).

In our view, the combination of a more supportive investment backdrop and new economic growth drivers offer a broad opportunity set for stock pickers, particularly in areas of strategic importance to both the US and China, including energy security, rare earth supply chains, geopolitics and AI development.

What lies ahead for US-China relations?

The US mid-term elections in November will bring uncertainty. Trump has played an important role in advancing talks with China; his desire to show progress increasing the likelihood of concessions in areas of US strategic interest. Interestingly, according to a recent Chicago Council on Global Affairs survey,³ Americans today are far less likely to view China as a critical threat and are more supportive of engagement with Beijing. This is especially true within the Democratic Party. Should they win control of one or both houses of Congress, there could be greater scope for diplomatic engagement and economic cooperation.

The leaders of China and the US committing to four meetings in a year is extraordinary and signals that, despite ongoing strategic competition, both sides continue to see value in maintaining a workable framework for dialogue where interests overlap.

For global markets, the benefit is a lower risk of sudden disruption across trade, energy, critical minerals and technology. For Chinese equities, it reinforces a selective, sector-driven approach focused on the companies best positioned for the country’s next phase of growth and supports the case for a more investable market.

IMPORTANT INFORMATION

There is no guarantee that past trends will continue, or forecasts will be realised.

Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments.

Emerging market investments have historically been subject to significant gains and/or losses. As such, returns may be subject to volatility.

Foreign securities are subject to currency fluctuations, political and economic uncertainty, increased volatility and lower liquidity, all of which are magnified in emerging markets. Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa.