Trade Truce Triggers Asian Rebound: A Fragile Turnaround?
2min read The abrupt pivot by former President Donald Trump to de-escalate trade tensions in April 2025 marked a pivotal moment for Asian equity markets and the U.S. dollar. After months of volatility fueled by tariff threats and geopolitical brinkmanship, a 90-day trade truce and policy pause catalyzed a rebound in regional indices and stabilized the greenback. But as markets celebrate this reprieve, critical questions linger: How durable is this recovery, and what risks lie ahead?
Ask Aime: How sustainable is the recent market rebound, and what are the potential pitfalls?
The Trade Truce: A Lifeline for Asian Markets
Trump’s decision to halt new tariffs and negotiate with China—announced through a series of administration signals—sent shockwaves through global markets. The immediate impact was stark: Asian stocks surged, with the Hang Seng Index clawing back from a 13% single-day plunge (its worst since 1997) to post its strongest weekly gain in over a year. Similarly, Japan’s Nikkei 225 and South Korea’s Kospi erased earlier losses as investors bet on calmer trade waters.
The truce also eased pressure on the U.S. dollar, which had lost nearly 10% year-to-date due to Trump’s attacks on the Federal Reserve and erratic policies. By mid-April, the ICE U.S. Dollar Index rose from three-year lows, buoyed by reduced uncertainty and the fading threat of collateral damage to Asian exporters.
Ask Aime: Can Trump's trade truce stability markets?
Policy Shifts and Proactive Measures
Asian governments seized the opportunity to bolster their economies. China’s central bank announced targeted rate cuts and infrastructure spending pledges, while Taiwan and South Korea moved swiftly to negotiate tariff relief. South Korea’s $2 billion aid package for its auto sector—a key U.S. tariff target—highlighted the region’s resolve to mitigate trade war fallout.
Meanwhile, the Federal Reserve’s eventual signal of potential rate cuts, delayed but ultimately delivered, alleviated liquidity concerns. With energy prices down 2.4% since March, inflationary pressures eased, reducing the urgency for aggressive Fed hikes. This twin relief—lower interest rate risks and trade stability—provided a floor for risk assets.
Technical and Geopolitical Undercurrents
Beyond policy changes, technical factors amplified the rebound. Asian markets had become deeply oversold, with the MSCI Asia ex-Japan index trading at a 15% discount to historical averages. As fears of a “trade war recession” faded, bargain hunters piled into beaten-down sectors like semiconductors and automakers.
Geopolitical risks also receded. Trump’s focus on de-escalation eased fears of spillover effects for third-party nations like Vietnam and Cambodia, whose tariff-delay requests were granted. This broader regional relief averted a synchronized slowdown, keeping export-dependent economies afloat.
The Fragile Upside
Despite the gains, sustainability remains in doubt. The truce hinges on U.S.-China negotiations, which have historically been prone to setbacks. Moreover, Asian exports still face headwinds: U.S. demand for electronics and machinery—a key driver of regional trade—remains uneven.
The USD’s rebound, while welcome, also carries risks. A stronger greenback could reignite inflation pressures in dollar-dependent economies, complicating monetary policy for central banks like the Bank of Japan or the Reserve Bank of India.
Conclusion: A Tenuous Equilibrium
The April rebound underscores how geopolitical shifts can reshape markets overnight. Asian equities and the dollar stabilized not just because of Trump’s truce, but due to coordinated policy responses and technical rebounds from oversold conditions. Yet, the 10% USD drop before the truce and the Hang Seng’s 13% intra-day plunge in early April serve as stark reminders of fragility.
For investors, the path forward is fraught with uncertainty. While near-term risks have diminished, the U.S.-China trade framework remains incomplete. Until structural issues like intellectual property disputes and supply chain realignments are resolved, gains could prove fleeting. The rebound is a reprieve, not a resolution—a fragile equilibrium in a world still waiting for lasting peace.
In this context, caution remains prudent. While Asian markets may continue to rally in the short term, positioning for volatility and monitoring trade negotiations will define the next phase of this story.
