On July 28, 2025, a new round of U.S.-China trade talks was held in Stockholm, the capital of Sweden. This marked the third meeting between the two sides in three months, following earlier talks in Geneva and London. The meeting took place just as the 90-day tariff truce, agreed upon by both sides in May 2025, is set to expire on August 12.

Amid rising global geopolitical tensions and increasingly restrictive trade policies, markets are closely watching whether the current talks can help extend the truce, reduce tariff-related uncertainty, and lay the groundwork for a more stable communication framework between the U.S. and China in key areas such as technology, energy, and cross-border capital flows.

What’s on the Table

According to information released by both sides, the latest round of consultations covers multiple areas, including adjustments to U.S. tariff policy on Chinese goods, export controls on key sectors such as semiconductors, and prospects for cooperation in green energy and the digital economy. The U.S. delegation is led by Treasury Secretary Scott Bessent, with Trade Representative Jamison Greer participating. The Chinese side is represented by Vice Premier He Lifeng.

Ahead of the meeting, Bessent stated that both sides would work toward a "possible" extension of the current trade truce, which is set to expire on August 12. The agenda is expected to include discussions on tariffs, export restrictions, and potential areas for future U.S.-China cooperation.

From the U.S. perspective, there is still no unified position within the White House on whether to extend the tariff pause on Chinese imports. While Bessent has said that "a tariff extension is likely," he also told NBC in a separate interview that “the final outcome remains uncertain.” His comments suggest that while the negotiations are being described as “positive,” notable differences remain.

Markets are paying particular attention to whether the U.S. might take the lead in easing tariffs in select areas. For example, the 20% punitive duties on certain Chinese exports—mainly raw materials and pharmaceutical intermediates linked to fentanyl—have recently come under pressure from lobbying efforts by the pharmaceutical and chemical industries, raising the prospect of exemptions or rate cuts during the talks.

On the Chinese side, negotiators are likely seeking clearer commitments on technology exports and investment rules. Recent U.S. restrictions on high-performance AI chips, EDA software, and advanced manufacturing equipment have affected companies such as Nvidia, AMD, and ASML in their China operations. While Nvidia's H20 chip has recently received renewed export approval, changes to the broader export control regime remain ad hoc and lack an institutionalized framework.

Market Expectations

From a market perspective, investors currently hold a generally optimistic outlook on the negotiation outcomes, with a widespread belief that the worst-case scenario is unlikely. Specifically, the market is pricing in three potential scenarios:

Positive Scenario (approximate probability: 30%)

The U.S. and China reach an agreement to extend the tariff truce for another 3 to 6 months while simultaneously easing export restrictions on key products. This could include a loosening of U.S. export licensing for AI chips and greater flexibility from China on the export of rare earth metals and related raw materials. Such a result would likely boost risk appetite significantly, drive further RMB appreciation, and spark rebounds in A-share sectors linked to export chains—such as home appliances, machinery, semiconductors, and rare earths—while benefiting major U.S. tech stocks like Nvidia, Apple, and AMD.

Neutral Scenario (approximate probability: 50%)

Both sides fail to reach substantive concessions but agree to maintain the existing 90-day negotiation framework, with no new tariffs imposed and no changes to current tariff rates. This outcome would keep the market cautiously optimistic, with risk appetite remaining stable in the near term but with relatively muted reactions. The RMB, U.S.-listed Chinese stocks, and related export-themed assets might see limited support but lack sustained upward momentum.

Negative Scenario (approximate probability: 20%)

If negotiations break down or the U.S. reinstates some of the additional tariffs after August 12, it would cause a material shock to the markets. Earnings expectations would be revised downward, pressure on the RMB would increase, and risk aversion could spike quickly. This would likely lead to declines in A-share export sectors, U.S.-listed Chinese ADRs, and emerging market assets.

In summary, current market behavior and capital flows reflect a strategy of “betting on the continuation of a neutral, cautious environment,” with cautious hopes for a positive breakthrough and defensive positioning against negative risks.

Shifting Backdrop

The current backdrop for the U.S.-China resumed negotiations is closely tied to recent shifts in the U.S. approach to multilateral trade policies. On July 28, the U.S. and the European Union reached an agreement to set a uniform 15% tariff on electric vehicles and reached a principled understanding on green industry subsidies. Negotiations with countries like Japan and South Korea are also nearing conclusion.

However, this “EU model” may be difficult to apply to China. Beijing rejects the idea of unified standards on issues such as technology security and subsidy transparency. At the same time, China possesses clear strategic countermeasures, such as restricting exports of critical raw materials—including gallium, germanium, and rare earth elements—or delaying foreign access to key technology sectors.

Additionally, former President Trump has recently reiterated his tough stance on trade with China in multiple public statements and proposed a “10-12 day final deadline” for agreements with Russia, signaling a preference for setting clear boundaries in diplomacy and trade policy rather than engaging in prolonged negotiations. While this approach may increase the urgency of issues, it also raises the risk of heightened policy volatility.

Bottom Line

Although the market broadly expects the negotiations to yield some results, there remains the possibility of maintaining the status quo without substantive adjustments. The final outcome may simply be an extension of the current policy framework for another 90 days, aimed at avoiding excessive market reactions while buying more time for talks.

In such a neutral scenario, while it may not immediately trigger significant trade disruptions, it is unlikely to provide businesses with clear and sustainable policy guidance, leaving some companies in a “wait-and-see” stance. Moreover, if divergences between the U.S. and China deepen on issues such as fentanyl control, cross-border data flows, and energy policy toward Russia, it could further constrain the pace of progress on economic and trade matters.