US Dollar Finds Strength as US-China Trade Tensions Show Signs of Easing

The US dollar is on track for its first weekly gain since March, as investors parse mixed signals from the ongoing US-China trade war for clues of a potential de-escalation. While tariff levels remain historic—peaking at 145% for US imports from China and 125% reciprocally—subtle shifts in policy and rhetoric have sparked cautious optimism. This article examines the drivers behind the dollar’s rebound and what it means for investors.

Key Developments: Tariffs, Trade-offs, and Tactical Retreats

The past month has seen both nations double down on punitive measures. China’s 125% tariffs on US goods, combined with restrictions on rare earth exports, have strained global supply chains. Meanwhile, the US maintains its 145% tariff regime, excluding only critical sectors like semiconductors and pharmaceuticals. Yet within this turmoil, two trends hint at a tactical pivot:

1. China’s Selective Tariff Rollbacks:
   Beijing has quietly reduced duties on US semiconductors and pharmaceuticals, per Bloomberg reports, easing pressure on its tech sector and healthcare supply chains. While China denies broader negotiations, these moves signal a willingness to prioritize strategic industries over symbolic resistance.
   

2. Trump’s Tactical Messaging:
   Despite claims of “active talks,” the White House has hinted at flexibility. President Trump stated he would “drop tariffs if China offers substantial concessions,” while Treasury Secretary Scott Bessent acknowledged the unsustainability of 145% tariffs. Internal discussions reportedly explore lowering rates to 50–65%, though no formal action has followed.

Market Reactions: The Dollar as a Safe Haven

The dollar’s recent strength—up 1.2% against the euro and 0.8% versus the yen this week—reflects its role as a haven in uncertain times. Investors are pricing in reduced risks of a full-blown trade war, even as tensions simmer.

• Equity Markets:
  Sectors tied to trade, such as semiconductors (), have rallied on hopes for tariff relief. Boeing’s shares surged 5% after China’s sanctions on its jets were reportedly softened, though Beijing denies this.
• Commodities:
  Base metals like copper, sensitive to trade sentiment, have stabilized after earlier declines. However, rare earth prices remain volatile due to China’s export controls.

Data-Driven Risks and Opportunities

The path forward hinges on two critical metrics:
1. Tariff Reduction Timelines:

A drop in tariffs to 65% would likely boost global GDP by 0.5%, per IMF estimates, but risks remain if talks falter.

1. Geopolitical Volatility:
   China’s insistence on preconditions—such as total US tariff cancellation—clashes with Washington’s “transactional” approach. Until a compromise emerges, markets will oscillate between hope and fear.

Conclusion: Caution Amid the Rally

While the dollar’s weekly gain reflects reduced trade-war anxiety, the path to sustained stability is fraught. Investors should:
- Monitor Trade Data: Track US-China trade volumes and Chinese export restrictions on rare earths ().
- Avoid Overexposure to Tariff-Exposed Sectors: Companies like Apple (exposed to Chinese manufacturing) and Intel (semiconductors) remain vulnerable to policy whiplash.
- Consider Safe-Haven Assets: The dollar’s 3% rally year-to-date versus the euro suggests further gains if risks remain elevated.

In the end, the dollar’s strength is a double-edged sword. While it signals investor confidence in US resilience, it also risks stifling global growth—a reminder that no trade war has a winner. As the IMF warns, a full rollback of tariffs could add $450 billion to global GDP by 2026. Until then, the dollar’s rise may be the lesser of two evils.