Investor stock portfolios are enjoying the best of times fueled by a combination of current developments that are drawing money off the sidelines and into risk assets. As of Sunday night, a constructive trade deal with China from the Trump advance team looks positive where the 100% tariffs on Chinese imports would be curtailed in exchange for a reduction of restrictions in rare earth metals and other concessions.
The delayed CPI inflation report released Friday paves the way for the Fed to lower short-term rates by a quarter point and lay the groundwork for another quarter point cut in December. The bull market in AI mega tech is now broadening out to include most of the other 10 sectors of the S&P 500 — and it is exciting to see the mid-cap, small-cap and micro-cap stocks not only participate, but play serious catch up ball on the conviction of lower future borrowing rates that they so heavily depend on.
Source: www.LinkedIn.com
President Trump and President Xi are going to meet and formalize a trade deal this week right in front of the holiday shopping season that is being touted as incredibly important to China’s export market, being that the United States remains China’s largest single export market. If the United States imposes 100% tariffs on Chinese imports, the impact on China’s economy would be significant but not catastrophic, likely shaving 1-2% off GDP growth to bring annual growth to around 4.5% while accelerating a shift in China’s export strategy to compensate for the tariffs.
To put this trade relationship into perspective, China’s exports to the United States account for roughly 2.9% of its GDP, down from a peak of 7.5% in 2006 (source: www.chinausfocus.com). The dependence of the Chinese economy on its exports, and in particular on its exports to the United States, has been declining significantly over time. The current narrative has been messaged as China’s economy suffering badly in a tariff war with the United States, but the data actually shows otherwise.
Granted, the chart below is produced by China’s Bureau of Statistics, but it does cast a light on the notion that this week’s meeting doesn’t offer much in the way of some major economic impact for both countries, but is a high-profile glad handing between the two superpowers to feel each other out in the long game of global power domination. The trade deal makes for impressive headlines and FOMO price action in the equity markets, but doesn’t even begin to address China’s long-term goals.
It seems to me that this meeting is more about Trump trying to keep close to Xi, as China’s rapid growth of its military assets and its Belt and Road investments signal a formidable dual-track strategy to project power globally both militarily and economically that threatens U.S. influence and favor in multiple markets and nations. It is my contention that Xi simply wants to outlast Trump’s tenure in office and accelerate its aims and goals when he takes his last helicopter ride off the White House lawn.
Defense spending in China is surging. Official figures put China’s 2025 defense budget at $247 billion, but independent estimates suggest actual spending could be as high as $471 billion, making it the second largest globally. China now has the world’s largest navy by number of battle force ships. It is evolving into a blue-water navy, capable of operating far beyond its shores. While it still trails the United States in tonnage and missile capacity, its reach is expanding.
China’s Belt and Road Initiative (BRI) is at record investment levels. In the first half of 2025 alone, China signed $66.2 billion in construction contracts and $57.1 billion in direct investments, nearly double the previous year’s pace (source: greenfdc.org). Projects include ports in Sri Lanka, railways in Africa and energy pipelines across Central Asia. These assets often come with dual-use potential, serving both commercial and military functions.
Critics argue that China’s lending practices trap countries in unsustainable debt, giving Beijing leverage over strategic assets like ports and telecom infrastructure. Together, China’s military buildup and BRI expansion reflect a coordinated strategy to reshape global power dynamics. The military secures China’s interests abroad, while the BRI builds economic dependencies and influence. This dual approach is challenging U.S. dominance and reshaping alliances across the Global South, which is 50% of the planet. The notion of the United States paying extreme fees to ship goods to half the world controlled by Chinese ports comes to mind.
Donald Trump has brought more interference to China than any preceding President and is doing so with what resolve he has to work with on a peaceful basis. For Xi, this week’s trade deal is more about tactical de-escalation and not resolution. The threat of 100% tariffs, a delay in rare earth export controls, promises of soybean purchases and fentanyl enforcement are largely reversible, tactical concessions.
There’s little evidence of structural changes to industrial subsidies, IP protections or state-owned enterprise reform that have been core U.S. demands championed by U.S. Trade Representative Robert Lighthizer since 2018. As the architect of Trump’s first-term trade war strategy, Lighthizer isn’t working with Trump now because he was passed over for key Cabinet roles and has declined to accept a lesser position in the administration.
Lighthizer’s zero-sum view of trade, coined China’s “Seven Deadly Sins” that foreign investment is a form of economic conquest, has clashed with more pro-market voices in Trump’s current team. His advocacy for taxing capital inflows and restricting foreign ownership of U.S. assets was seen as too extreme, even within Trump’s inner circle during the second term.
Lighthizer’s absence marks a pivot away from hardline protectionism toward a more investment-friendly approach. While Trump still touts aggressive tariffs, the personnel choices suggest a balancing act between populist rhetoric and Wall Street interests. And by all measures, right or wrong, the market is “all in” on this line of thinking spearheaded by Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick. The current narrative is what the market wants to hear, and up we go.
The meeting this week suggests China is offering just enough to defuse immediate escalation and live out the Trump era, while preserving long-term leverage. Many analysts argue that the Trump-Xi trade deal is a tactical win for Trump’s short-term optics in front of the 2026 midterms. Trump may have won the news cycle, but Xi is playing the long game, preserving China’s strategic position while giving just enough to avoid escalation.
Donald Trump’s term will end in January 2029. Xi removed term limits in 2018, allowing him to remain in power indefinitely. China’s ruling party employs strategic patience to outlast strong leaders like Trump. While Trump may win the moment, Lighthizer’s framework offers a more coherent and enforceable doctrine for the United States to continue its dominance of an ideologically comprehensive adversary.
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