Trump and Xi Set for High-Stakes Showdown: Markets Soar as U.S.–China Trade Truce Teases a Breakthrough—or a Letdown

Global markets are starting the week with a wave of optimism after a surprisingly constructive round of U.S.-China trade talks in Malaysia over the weekend. The meetings, led by Treasury Secretary Scott Bessent, Commerce Secretary Greer, and Chinese Vice Premier He Lifeng, marked the fifth high-level engagement between the two powers this year—but arguably the most consequential yet. Both sides emerged Sunday projecting confidence that they have reached a “positive framework” ahead of the Trump–Xi summit set for Thursday at the APEC conference in South Korea. The upbeat tone comes after months of renewed tariff threats and rare earth export tensions, and it has helped spark a global equity rally that is setting a supportive tone for what will be one of the most eventful weeks of the year: a Fed policy meeting, a slate of mega-cap tech earnings, and now, potentially, the first comprehensive U.S.-China trade framework since the original “Phase One” deal.

According to both sides’ official readouts, negotiators in Malaysia reached preliminary consensus on several key areas that had been flashpoints throughout the renewed trade dispute. Bessent described the discussions as “constructive, far-reaching, in-depth,” while China’s Li Chenggang confirmed “a consensus” on key issues including fentanyl tariffs, shipbuilding fees, and agricultural trade. Bessent later told CBS that Beijing agreed to make “substantial” new U.S. soybean purchases—a long-awaited concession that would provide relief to American farmers hit by China’s earlier pullback. Just as significant, China is reportedly set to defer implementation of additional rare earth export restrictions for at least a year. This represents a de-escalation from earlier this month, when Beijing’s planned controls on rare earths used in everything from EV motors to jet engines rattled global supply chains and drew sharp warnings from Washington.

The two sides also made progress on several peripheral but symbolically important issues. Reports confirmed that the U.S. and China have finalized the long-delayed TikTok framework agreement, which will now allow the video-sharing app to continue U.S. operations under new ownership and data oversight provisions. In addition, Bessent indicated that the Trump administration could remove the 20% tariffs tied to fentanyl-related trade after Thursday’s summit, contingent on Chinese cooperation to stem the export of precursor chemicals. Combined, these steps point to a stabilization in relations and—if formalized later this week—a possible extension of the current trade truce set to expire November 10.

Still, the timing and sequencing of tariff actions remain critical. The White House’s latest round of threatened 100% tariffs on Chinese goods would take effect November 1 if no extension is granted, while China’s own reciprocal duties are scheduled to re-engage shortly thereafter. Bessent suggested Sunday that Trump is inclined to extend the truce, but he stressed the final decision rests with the president. For his part, Trump has sounded both ambitious and restrained—telling reporters aboard Air Force One he hopes for a “complete deal,” yet also signaling that a narrower “framework for progress” may be the likelier outcome. That nuance is key: the market has priced in optimism, and any perception of stalemate could spark retracement from record highs.

The geopolitical backdrop adds to the stakes. Trump’s Asia tour—his first since returning to office—has already included side agreements on critical minerals with Malaysia and Cambodia, as well as a preliminary framework with Thailand and Vietnam. The cumulative effect is to reassert U.S. influence in the region at a time when Beijing’s trade leverage remains sensitive to rare earth export controls and semiconductor supply chains. At the same time, the U.S. launched a new Section 301 investigation into China’s compliance with the first-phase trade commitments from Trump’s initial term, underscoring how fragile the trust deficit remains even amid diplomatic progress.

For markets, the short-term narrative is simple: any extension of the truce and concrete progress on agricultural purchases, rare earth access, or fentanyl tariffs will be viewed as risk-on. Investors have already rewarded the tone shift—S&P 500 futures are up nearly 1%, following strong gains across Asia and early strength in Europe’s industrial and tech sectors. The more favorable interpretation would be a deal that rolls back some existing tariffs or definitively delays new ones while codifying China’s deferred export restrictions. That could provide a sustained tailwind for equities and commodities while easing pressure on global supply chains.

However, expectations are now sky-high, and that may prove a double-edged sword. If Thursday’s Trump–Xi meeting produces merely a reiteration of the “status quo”—a handshake agreement to avoid new tariffs, a few token soybean purchases, and vague promises of future cooperation—markets could interpret that as a disappointment given how much optimism is currently priced in. Investors will also weigh how these trade developments interact with other major catalysts this week: the Federal Reserve’s Wednesday meeting, where a 25bp rate cut is widely expected, and the flood of earnings from five of the “Magnificent Seven”—Microsoft, Alphabet, Meta, Apple, and Amazon.

In the near term, tech earnings will likely drive equity performance more than the trade headlines, given the AI-driven narrative dominating corporate results. Yet, the more durable impact for the global economy will come from the U.S.-China trade framework. A credible path toward de-escalation could underpin a broader rally into year-end; a vague communiqué, on the other hand, risks resetting sentiment as investors confront the reality that the two largest economies may still be miles apart on enforcement and structural reforms. For now, optimism reigns—but this week’s convergence of geopolitics, monetary policy, and mega-cap earnings will determine whether that optimism matures into conviction or fades as another fleeting trade truce rally.