Markets Breathe Again: Trump and Xi Step Back From the Brink—But Tariff Drama Is Far From Over

Markets are regaining their footing after a volatile stretch dominated by renewed U.S.–China trade tensions. The week began on steadier ground, with equity futures and commodities rallying as both sides appeared to temper their rhetoric following a weekend of conciliatory remarks. Less than 48 hours after President Trump threatened to impose 100% tariffs on all Chinese imports, he reversed course , saying the relationship with Beijing “will all be fine” and that President Xi “just had a bad moment.” Beijing, for its part, issued reassurances that its newly announced rare earth export restrictions would be “extremely limited,” easing concerns about supply chain disruptions. Together, those softer tones have helped unwind some of Friday’s market panic and restored the prospect of a Trump–Xi meeting later this month at the APEC summit.

The rapid shift in tone underscores how the tariff story remains a recurring source of headline-driven volatility. On Friday, Trump had rattled markets by not only floating a sweeping new round of tariffs effective November 1, but also by threatening export controls on critical software, particularly chip design tools made by companies like Cadence Design Systems and Synopsys. The White House also hinted at potential restrictions on Boeing parts—a comment that amplified fears of a full-scale trade rupture. Within hours, Beijing condemned the U.S. escalation, vowing “corresponding measures” if the tariffs proceed. Over the weekend, however, both sides signaled a willingness to talk, with Trump softening his stance and China insisting it “does not want to fight, but is not afraid to fight.”

Beijing’s reassurance on rare earth exports played a key role in calming global sentiment. After initially broadening export restrictions and adding Western defense firms to its “unreliable entity” list, China clarified that the measures would not meaningfully disrupt most companies’ operations. It also urged Washington to “meet halfway” and resume dialogue. Analysts see this as a tactical reset—an effort to manage market fallout without appearing to back down domestically. Still, the underlying dispute remains unresolved, and both sides continue to test leverage in sectors ranging from semiconductors to aviation.

Investors will now look toward the upcoming World Bank and IMF annual meetings in Washington (October 13–18) as the next potential inflection point. The event provides an opportunity for informal U.S.–China discussions, and officials on both sides are expected to use the forum to gauge whether a broader thaw is achievable ahead of the APEC summit. The meetings also come amid an ongoing U.S. government shutdown, further complicating Washington’s diplomatic bandwidth. While a détente remains possible, few expect either nation to fundamentally shift its trade posture before late October.

The primary market takeaway is that a meeting between Trump and Xi still appears likely, but tariff noise is poised to linger through earnings season. Traders should brace for more rhetorical whiplash as both leaders use trade positioning as political and economic leverage. The November 1 tariff threat carries a built-in window for negotiations—likely by design—allowing for a deal or at least a pause that could spare markets from a sharp escalation. Still, the risk of renewed friction remains high, particularly as the U.S. continues to tighten export controls and China seeks to assert greater control over strategic industries.

Beyond tariffs, investors should not overlook the broader legal and policy backdrop. The Supreme Court’s pending review of the IEEPA tariff authority could significantly reshape trade policy mechanics. Even if the Court strikes down the measure, it may not be bullish for markets—Trump could invoke other statutes to maintain tariffs, extending uncertainty into 2026. Moreover, tariffs have become an important revenue source for the Treasury; any legal disruption could indirectly pressure yields higher if refunds or lost receipts strain fiscal flexibility.

For now, the rebound in risk assets reflects relief rather than resolution. The S&P 500 has recovered most of Friday’s decline, but the broader setup remains fragile. Tariff disputes have re-emerged as a front-burner concern for the first time in months, rejoining the government shutdown and earnings season as key near-term drivers. Market participants would be wise to treat every statement from Washington and Beijing as market-moving headline risk—because, for now, it is. The path forward hinges less on formal policy changes and more on tone, timing, and whether the IMF meetings this week produce even a modest signal of compromise. Until then, volatility is back on the trade docket, and investors will need to keep one eye on tariffs and the other on the ticker tape.