Geopolitical Risk and Asset Allocation: Navigating the Trump-Xi Meeting and US-China Trade Truce Expiry

The impending Trump-Xi meeting in late October 2025 and the expiration of the US-China trade truce on November 10, 2025, have become pivotal focal points for global investors. These events, coupled with escalating tariffs and strategic posturing in critical sectors like semiconductors and rare-earth materials, are reshaping asset allocation strategies. As both nations maneuver for leverage, the potential for renewed trade tensions or a structured resolution demands a nuanced approach to portfolio reallocation.

The Crossroads of Diplomacy and Markets

The Trump-Xi meeting, set against the backdrop of the APEC summit in South Korea, represents a critical juncture. According to a Bloomberg report, the US has signaled a hardline stance on export controls, while China has leveraged its dominance in rare-earth exports to assert strategic pressure. CNN reported that if the truce expires without renewal, tariffs could surge to 125% on Chinese imports and over 32.6% on US exports to China (a scenario that would likely trigger supply chain disruptions, inflationary pressures, and heightened volatility in global markets). Conversely, a trade deal-potentially involving increased Chinese purchases of US energy, agriculture, and semiconductors-could stabilize trade flows and boost market sentiment. The CNN piece also highlights the supply-chain issues that would persist even after headline truce developments.

Historically, truce extensions have led to positive market reactions. For instance, CNBC noted that the August 2025 truce extension spurred record highs in Asian, European, and US markets. However, the current environment is more uncertain, with investors grappling with mixed signals. The CNN analysis remains circumspect about the likelihood of a breakthrough, reflecting guarded optimism amid geopolitical risks.

Sector Rotations: Winners and Losers in a Fragmented Landscape

The semiconductor sector, a flashpoint in US-China competition, is under intense scrutiny. The Biden administration's export controls and the CHIPS and Science Act of 2022 have driven companies like TSMC to invest heavily in US manufacturing hubs, as previously reported by CNBC. Investors may benefit from overweights in semiconductor equipment firms and underweights in Chinese chipmakers, given the US's strategic focus on technological decoupling.

In contrast, sectors less exposed to trade tensions-such as healthcare and utilities-offer defensive opportunities. T. Rowe Price recommends rotating into these sectors, which historically exhibit lower volatility during geopolitical crises. Agriculture and energy, however, face headwinds due to tariffs and supply chain reconfigurations. For example, US agricultural exports to China have been hit by retaliatory measures, while fossil-fuel markets remain volatile due to Middle East and Ukraine conflicts, according to an EIU analysis.

Hedging Strategies: Mitigating Geopolitical Uncertainty

To hedge against potential escalations, investors are increasingly adopting diversified approaches. Currency risk management, commodity ETFs, and derivatives like volatility-linked instruments are gaining traction, consistent with the T. Rowe Price view. For instance, gold and US Treasuries have historically served as safe havens during trade wars, with gold prices surging by 12% in 2019 amid tariff threats, as highlighted in the EIU analysis.

Institutional investors are also leveraging regional trade agreements like the CPTPP and AfCFTA to diversify exposure beyond the US-China axis, based on a BridgeheadAgency analysis. Nearshoring and secondary sourcing strategies are being prioritized to mitigate supply chain risks, particularly in manufacturing and technology, which the BridgeheadAgency piece emphasizes.

Regional Positioning: Opportunities Beyond the US-China Binary

Emerging markets not directly involved in the trade conflict-such as India and Southeast Asia-are attracting attention. The T. Rowe Price viewpoint favors equities in Japan, Hong Kong, and the UK, citing their resilience to trade-related disruptions. India, in particular, is emerging as a key manufacturing hub, offering a hedge against China's geopolitical leverage.

Fixed income remains a preferred asset class amid uncertainty. The T. Rowe Price guidance highlights the appeal of sovereign bonds, particularly Italian BTPs and UK Gilts, as yields adjust to inflationary pressures and rate-cut expectations.

Conclusion: Balancing Risk and Resilience

The Trump-Xi meeting and truce expiry present both risks and opportunities. A structured trade deal could unlock growth in energy, agriculture, and technology sectors, while escalation would likely drive capital toward defensive assets and diversified markets. Investors must remain agile, leveraging historical insights and hedging tools to navigate this complex landscape. As geopolitical risks evolve, strategic asset allocation will hinge on adaptability, sector-specific insights, and a long-term focus on resilience.