BOCOM INTL expects a high probability of the US and China reaching a détente arrangement at APEC, and short-term market fluctuations should not alter the mid-term trend

BOCOM INTL published a global macro report stating that U.S. President Trump recently released a lengthy post on social media, announcing that starting from November 1 this year, the U.S. will impose an additional 100% tariff on China, citing China's implementation of export controls on rare earths and related items as the reason. He also threatened to impose export controls on all critical software to China. As of yesterday (13th), just two days after Trump announced the tariff increase, both President Trump and Vice President Vance publicly expressed their positions, signaling a de-escalation, and the situation significantly eased thereafter. Trump stated around 1 PM Eastern Time via social media, "Everything will be fine with China," showing a clear shift in tone from his previous hardline stance. Almost simultaneously, Vice President Vance indicated that if China is willing to adopt a rational attitude, the U.S. is also willing to negotiate with China.

Given that the leaders of China and the U.S. are set to meet at the APEC summit in South Korea at the end of October, the timing of this escalation and the subsequent statements from the U.S. side suggest that both parties are engaging in a game of increasing leverage before formal negotiations, aiming for a more favorable position in the upcoming summit talks.

BOCOM INTL pointed out that the rapid shift in the U.S. stance indicates that this escalation is more likely a pressure tactic before negotiations. From the behavioral patterns of the Trump administration, this action seems to align with the market's familiar "TACO" strategy of "applying pressure first, then showing goodwill," which has become a common negotiation tactic for them. Looking back at the "reciprocal tariffs" incident in April this year, Trump similarly shifted quickly after market panic peaked, ultimately facilitating the initiation of the first round of U.S.-China trade talks.

In summary, the bank tends to believe that the likelihood of the large-scale tariff increase being implemented is low. The Trump administration is well aware that in the current context of internal and external challenges facing the U.S. economy, a comprehensive escalation of tariffs on China would bring significant and unpredictable impacts—not only would it raise domestic inflation expectations, but it could also interrupt the ongoing interest rate cut cycle, potentially affecting the political landscape for the 2026 U.S. midterm elections. Additionally, the current U.S. government faces multiple internal political and economic constraints. Therefore, BOCOM INTL believes there is a high probability that both sides will reach a de-escalation arrangement during the summit, creating conditions for further stabilization of economic and trade relations. For Chinese assets, short-term fluctuations should not alter the medium-term trend, and adjustments present buying opportunities.

The bank believes that this short-term uncertainty has a relatively limited impact on the "slow bull" outlook for the Chinese stock market. Firstly, this escalation is more likely a negotiation strategy rather than a final outcome, with a high probability of subsequent easing; secondly, the endogenous momentum of the Chinese economy is recovering, and the policy toolbox remains ample, allowing for sufficient space to hedge against external disturbances; thirdly, although the current market valuation levels have somewhat recovered, they remain reasonably low compared to historical averages and comparable international markets, indicating that a margin of safety still exists