Donald J. Trump took office on January 20, 2025, not even four full months ago.

But it has been quite a ride…

That’s true of everything, but especially when it comes to tariffs. Trump started imposing those very quickly.

On February 1, he declared 10% tariffs on China and 25% on Canada and Mexico. Two days later, he announced a 30-day pause on the latter two, but the former went into effect the very next day.

China immediately responded with its own 15% fees on U.S. coal and liquified natural gas. Meanwhile, crude oil, agricultural machinery, and “large displacement” vehicles with higher-liter engines got 10%.

The international trade war was officially on. As was market volatility.

All through February, March, and April, the two countries fired harsh policies and words at each other. Neither Trump nor Chinese President Xi Jinping appeared willing to back down one bit.

That’s why, even when Trump announced a 90-day reprieve on his “Liberation Day” tariffs a month ago, China wasn’t included. Instead, Chinese goods arriving on U.S. shores faced 145% tariffs.

So, Xi ramped up his own to 125%.

We got plenty of headline-making comments and commentary out of all this – far too many to list here. But CNN’s April 12 piece, “Trump is waiting for Xi to call. The Chinese see it differently” might sum the situation up well enough.

Nobody quite knew who to believe weeks later when Trump began saying he and Xi were officially talking… and Xi essentially called him a liar. I have to admit, I still don’t know exactly what to make of that exchange except for this:

They’re definitely talking now.

What You Need to Know About U.S.-China Negotiations So Far

I’m sure you saw the news yesterday that the U.S. and China have agreed to slash – though not eliminate – their tariffs against each other for the next 90 days.

The Trump administration will drop its 145% rate down to 30%. And Beijing will reduce its own from 125% to 10%. Moreover, according to a joint statement released by the White House:

… the Parties will establish a mechanism to continue discussions about economic and trade relations. The representative from the Chinese side for these discussions will be He Lifeng, Vice Premier of the State Council, and the representatives from the U.S. side will be Scott Bessent, Secretary of the Treasury, and Jamieson Greer, United States Trade Representative.

Exactly what will come of this, I don’t know. But I do think there’s room for optimism, and not just because stocks reacted so well to the news.

After all, the stock market has been notoriously volatile lately. It reacts to headlines first and analyzes second. So, its day-to-day moves mean next to nothing as worthwhile predictions.

With that said, I do think the mainstream media’s narrative is on far shakier ground today. The common wisdom was that President Trump was a madman with no hope of changing Chinese-American trade.

Then again, this argument was never that strong to begin with when China was struggling well before Trump took over. As The Wall Street Journal noted on January 1:

China’s economy today is burdened with excess: Millions of empty or unfinished apartment blocks, trillions of dollars in debt straining local governments and ballooning industrial production driving an export surge that is igniting trade tensions worldwide.

And since that situation has been getting steadily more noticeable since COVID hit six years ago, the Chinese populace is becoming more and more discontent. Consumer spending is down…

Marriages are down…

Societal tensions are simmering in ways that have to make even a dictator nervous…

In short, Xi can’t afford another hit. And Trump knows an opportunity when he sees one.

But There’s Still a Lot We Don’t Know

Now, don’t get me wrong. I’m not saying that Trump has won everything in this trade war against China. Or that he will win everything.

As I already wrote, only time will tell how this drama ends. And only a fool would think the U.S. holds all the cards here.

Despite the red dragon’s economic and social suffering, it still maintains a nasty bite. To quote The Wall Street Journal again, this time from last December:

In the weeks since the election, China has flaunted the ways in which it could hit back at the U.S. in the event of a new trade war… including everything from choking off the metals needed for everyday products to punishing American companies that do business in China.

And while it goes on to note how such retaliations could backfire – escalating corporations’ concerns about relying on Chinese manufacturing – the short- and mid-term pain of the U.S. losing its rare earths supply is significant.

Those minerals are used in everything from rockets to computers to electric vehicle batteries. And China supplies up to 90% of the production.

That gives it a pretty powerful negotiating tool.

Then again, on top of all the reasons I already listed, China sold $442 billion worth of goods to the U.S. last year. That makes America its biggest trading destination – by far. The next largest destination, according to The Observatory of Economic Complexity, is Hong Kong at $259 billion.

China can’t afford to lose the U.S. market, and not just from a national GDP standpoint. The number of individual businesses that would suffer and perhaps even collapse without U.S. dollars would be significant, leading to an even greater chance of civil unrest.

So, am I betting Donald Trump can still come away with a win?

You’d better believe it. And, again, I do think this tariff de-escalation between China and the U.S. is a very positive step.

However, let’s be smarter than Mr. Market with his short-term euphoria. Don’t stop focusing on buying quality stocks at bargain valuations, or on holding them as long as it makes sense to do so.

Nick Ward, analyst with The Wide Moat Letter, summed it up well yesterday:

There’s nothing you or I can do about international trade negotiations, currency markets, or the macroeconomic conditions. So, what can we do?

We’ll do what we always do – focus on fundamentals.

I know that all of these headlines can be confusing, frustrating, or even scary to wade through. But as always, time in the market is way more important than timing the market.

Our strategy at The Wide Moat Letter is not a complicated one. We accumulate shares of wonderful companies at attractive prices. Then, barring a change in our thesis, we sit back and let those dividends roll in.

I’ll be scouring the markets for those exact kinds of opportunities as more details emerge about trade negotiations between the world’s two largest economies. I’m sure both countries will make my job exciting from here, to say the least.

Regards,

Brad Thomas
Editor, Wide Moat Daily

MAILBAG

Do you agree with Brad that Trump will come out on top through these negotiations? Write us at [email protected].