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Home Politics

Trump’s trade brinkmanship imperils market stability

July 6, 2025
in Politics
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As the United States and China inch toward formalizing the outcomes of their recent economic talks in London, markets are sending a clear signal: they want stability, not another season of tariff theatrics. Yet the Trump administration’s renewed protectionist tilt, including the looming July 9 deadline for punitive tariffs, risks derailing a fragile recovery and undermining American economic resilience.

The London meetings followed a call between President Trump and Chinese President Xi Jinping, culminating in a framework that would resume China’s rare earth exports and ease U.S. trade restrictions. It’s an imperfect deal, but it reflects an important truth: Economic coercion has failed to deliver strategic outcomes. Markets, manufacturers and consumers are all still paying the price of the last trade war.

Rare earths remain a critical node in this standoff. China refines nearly 80 percent of the global supply — inputs essential to American electric vehicles, semiconductors and defense technologies. When Beijing halted export approvals earlier this year, U.S. manufacturers faced mounting delays and soaring input costs.

The reversal eases a significant bottleneck and offers inflation relief. In exchange, China will regain access to U.S. manufacturing inputs and regulatory clarity — a win for both sides, but especially for U.S. firms squeezed by global supply chain frictions.

Rare-earth dynamics further reinforce the stakes. China’s June 26 pledge to resume rare-earth shipments to the U.S. triggered a sharp rally in domestic producers. Meanwhile, export volumes from China had fallen nearly 50 percent year-over-year in May, citing tightened controls.

Those disruptions directly impacted U.S. electric makers and aerospace supply chains. In this context, the tentative deal on rare-earths licensing isn’t a niche victory — it’s a strategic pivot that underscores: markets reward policy clarity, even in geopolitically charged commodity markets.

Yet the calm is temporary. Trump’s “Liberation Day” tariff framework proposes up to 50 percent duties on countries that fail to sign new bilateral deals by July 9. A 90-day grace period has been offered, but this is brinkmanship disguised as strategy. And if the deadline passes without a broader deal, the tariffs snap back — with potentially damaging ripple effects.

The last trade escalation offers a cautionary tale. Tariffs on Chinese goods hit 145 percent; Beijing responded with levies up to 125 percent. American manufacturers endured record costs, while exporters in both countries lost access to reliable markets. The U.S. goods trade deficit with China didn’t shrink — it widened to $396 billion in 2024. Meanwhile, American farmers faced oversupply, and consumers bore the burden through higher prices.

U.S. equities have responded to this nascent trade detente with enthusiasm. The S&P 500 ETF recently hit $615, brushing off earlier tariff jitters. Meanwhile, traders have rotated into commodities, with copper futures climbing nearly 3 percent in late June, reflecting expectations of stronger industrial demand under clearer supply logistics. Even gold has softened from conflict-driven highs. Markets are signaling that certainty matters — not tariff theatrics. The contrast is clear: a modest trade framework sparks calm; tariff threats inject volatility. That is the heartbeat investors care about.

The global spillover from trade tensions was immediate. The Organization for Economic Co-operation and Development, World Bank and International Monetary Fund all downgraded growth forecasts, citing the uncertainty created by revived trade barriers. Investor sentiment plunged. Only now, as trade talks signal détente, has the S&P 500 rallied and oil futures stabilized. Markets know the difference between real strategy and performative populism. So do the businesses that depend on open trade.

Trump’s tariffs didn’t reshore factories or rebalance the trade deficit. What they did do was erode U.S. credibility with allies, invite World Trade Organization scrutiny and distort global supply chains. If the objective was to discipline China’s behavior, the evidence shows failure. What has worked — albeit modestly — is targeted cooperation, regulatory certainty and consistent enforcement of existing rules.

The current agreement is a pragmatic step forward. It restores supply chain continuity for U.S. firms, removes ambiguity for global investors, and signals that economic diplomacy still matters. It also nudges U.S. trade policy back toward rational engagement after years of unilateral theatrics.

Legal uncertainty still clouds the picture. A recent federal court ruling in V.O.S. Selections v. United States raises questions about whether the White House even has the authority to implement broad-based tariffs under the International Emergency Economic Powers Act. If the decision is upheld, it will undercut the legal rationale for Trump’s tariff agenda — and perhaps prompt overdue congressional clarity on trade powers.

The broader lesson is clear: economic interdependence isn’t weakness — it’s leverage. The U.S. and China will remain strategic competitors, but durable competition requires rules, not impulsive penalty regimes that backfire on domestic producers.

If this new framework holds, it won’t mark the end of rivalry — but it could mark the beginning of a more coherent doctrine of economic statecraft. One that recognizes that markets punish uncertainty, and that protectionism is not a patriotic virtue but an economic deadweight.

For now, Washington would do well to recognize what the S&P already has: stability is strength. And the best way to keep markets calm is not through tariffs — but through smart, disciplined diplomacy.

Imran Khalid is a physician and has a master’s degree in international relations.



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