Market Rebounds, U.S. Attitude Shifts Dramatically: The Calculations Behind the Policy Shift Toward China

Text | Special Contributor to Caijing, Jin Yan, reporting from Washington

Editor | Su Qi

Original Title: Market Sentiment Reverses, Why Has the US Quickly Softened Its Stance Toward China?

Concerns about a repeat of the market turmoil in April triggered by trade and tariff-related news began to dissipate on Monday, October 13.

As the Trump administration continued to send signals of easing and sought negotiations, US stocks closed higher on Monday, with all three major indexes recovering part of Friday’s losses. The Dow rebounded nearly 600 points, and the S&P recouped about half of Friday’s losses. The semiconductor ETF closed up more than 4.4%, leading US sector ETFs, and the S&P technology sector rose about 2.5%. The China concept index closed up 3.2%.

Gold’s rally continued. At the close of trading in New York on October 13, spot gold rose 2.27% to $4,109.17/ounce, showing a sustained and smooth upward trend throughout the day, at one point hitting a new all-time high of $4,117.13. COMEX gold futures rose 3.21% to $4,128.80/ounce, at one point reaching $4,137.20, setting an intraday record high. The Philadelphia Gold and Silver Index closed up 4.76% at 309.59 points, breaking the previous closing record high of 309.12 points set on October 8. The NYSE ARCA Gold Miners Index closed up 4.00% at 2,201.05 points, approaching the record closing high of 2,207.52 points set on October 8.

On October 10 local time, US President Trump threatened to impose massive tariffs on Chinese goods, including export controls on key software. Trump stated that in response to China’s export controls on rare earths and related items, the US would impose 100% tariffs on Chinese goods starting November 1. This caused significant volatility in the US stock market, with options trading volume hitting a historic record.

In the following 60-plus hours, the US government’s stance shifted dramatically. Trump hinted that he would not implement the threatened “substantial tariff increases,” and Vice President Vance signaled a willingness to negotiate. US Treasury Secretary Scott Besant revealed in an interview with US media that the US and China had extensive communications over the weekend, saying, “We have significantly eased tensions.”

Several Wall Street analysts told Caijing that if Trump followed through on his threats, he would face significant political risks and spark deeper concerns about the US market and inflation.

Rare earths are crucial to the technology manufacturing industry. On October 9, China’s Ministry of Commerce issued an announcement on export controls for 12 core technologies, including rare earth mining, smelting, and magnet manufacturing, for the first time setting a threshold of “Chinese content ratio of 0.1%” for overseas product exports, and implementing case-by-case approvals for military use and advanced process chip R&D. On October 12, a spokesperson for the Ministry of Commerce stated in response to a reporter’s question that China’s export control measures on rare earths and related items are a legitimate move by the Chinese government to improve its export control system in accordance with laws and regulations.

Since the renewed US-China trade conflict this year, despite four rounds of in-depth consultations, the two governments have not been able to break through on core differences to completely resolve the unfavorable “non-cooperative equilibrium” both sides face. Trump’s decision to escalate the US-China trade conflict at the critical moment before the Asia-Pacific Economic Cooperation (APEC) summit is interpreted as an attempt to exert maximum pressure before negotiations to gain more bargaining chips—a tactical strategy for the new round of economic and trade talks.

On Sunday, China’s Ministry of Commerce stated that threatening with high tariffs is not the right way to deal with China. At the regular press conference on October 13, Foreign Ministry spokesperson Lin Jian said that recently, the US has continued to introduce a series of restrictions and sanctions against China, seriously harming China’s interests. China firmly opposes this. Lin Jian said that instead of self-reflection, the US is threatening with high tariffs, which is not the correct way to deal with China. China urges the US to correct its mistakes as soon as possible, to be guided by the important consensus reached by the two heads of state, and to resolve respective concerns through dialogue on the basis of equality, mutual respect, and reciprocity, properly manage differences, and maintain the stable, healthy, and sustainable development of China-US relations. If the US insists on going its own way, China will also resolutely take corresponding measures to safeguard its legitimate rights and interests.

The tariff escalation between China and the US in April this year has already proven that the US threat of 100% or higher tariffs is difficult to implement in reality and has basically lost its economic significance.

The market responded to this escalation with violent fluctuations. Data shows that the total trading volume of US options exceeded 100 million contracts, only the second time in history—the last time was on April 4, when the market fell 5.97%. Put option trading volume hit the second highest record in history, while call option trading volume set a new record, with more than 60 million contracts changing hands.

Trump’s attitude warmed on Sunday. He posted on social media: “Don’t worry about China, everything will be fine!” Later, on Air Force One, Trump told reporters that he expected to eventually reach an agreement with China, saying November 1 was “still far away,” and added, “I think we’ll be fine with China.”

US Vice President Vance said that if China is “willing to take a rational attitude,” Trump is open to negotiations with China. Vance said he spoke with Trump on both Saturday and Sunday. Vance said Trump “values the friendship he has established with China.”

US Treasury Secretary Scott Besant revealed in an interview with US media that the US and China had extensive communications over the weekend, saying, “We have significantly eased tensions.” He said, “I believe the meeting plan will still go ahead, creating conditions for the two countries to restart negotiations.” Besant also mentioned that during the IMF and World Bank annual meetings in Washington this week, the US will hold “high-level meetings” with Chinese officials.

Investors were encouraged by Trump’s remarks. Bitcoin rose more than 3% over the weekend, trading above $115,000. Gold and silver futures both rose more than 1%, and crude oil futures rose nearly 1%. The Intercontinental Exchange DXY Dollar Index, which measures the dollar against a basket of foreign currencies, was basically flat.

Analysts told Caijing that there are several reasons behind the US’s rapid softening of its stance toward China.

The leaders of China and the US recently reached a “framework” agreement on TikTok’s US operations. If the deal is successfully completed, it will be a rare breakthrough in US-China trade negotiations. Trump himself is waiting for the deal to be approved by the US Congress and does not want to act rashly and lose the TikTok deal.

In addition, Trump has begun to put the US-China soybean issue on the important agenda. US soybean farmers are facing pressure from shrinking sales markets, especially in agricultural states that have strongly supported Trump. If hopes for China buying US soybeans are slim, it will pose a political risk for Trump.

According to data from the US Department of Agriculture, China has not placed any new orders since May this year. Last year, out of the US’s $24.5 billion soybean output, China consumed nearly half. Photo/Jin Yan

Third, China dominates global rare earth supply. Now, control over rare earth metals and raw materials and technologies such as batteries is crucial, as these materials and technologies will drive the next generation of industry. If Trump escalates tariff threats, China’s control over rare earths will pose risks to the US automotive and aerospace supply chains.

Domestically in the US, the government shutdown has lasted nearly two weeks. Trump’s permanent layoff measures have intensified Democrats’ suspicions of Republicans and may prolong the shutdown. In addition, a key payroll deadline is approaching. October 15 is the next payday for most federal employees and may be the first time many public servants experience missed paychecks.

The US economy has already been dragged down by tariffs, and recently many economists have raised their growth forecasts for the US economy due to increased certainty around tariff policy. The renewed political uncertainty and rising costs brought by tariff policy will deal a greater blow to the US economy.