Get ready for a wild ride as we dive into the world of international trade and its impact on global markets!
The stock market is on the edge of its seat, anticipating a potential rebound after a tense Friday trade war episode. President Trump's recent announcement of a 100% tariff on China and software export restrictions has sent shockwaves through the financial world. But here's the twist: Trump's latest move might just be a strategic bluff, a tactic he's employed before with other trade partners.
In a surprising turn of events, Trump's post on Truth Social aimed to soothe nerves, assuring everyone that "it will all be fine." He even expressed a desire to help, not harm, China. Vice President JD Vance echoed this sentiment on Fox News, suggesting the U.S. is open to reason, despite Trump's "far more cards" advantage.
This shift in tone is a stark contrast to Trump's fiery rhetoric on Friday, when he lashed out at China's new export controls on rare earths. These critical inputs are essential across various industries, and their control is a powerful bargaining chip.
Michael Brown, a senior research strategist, believes investors are embracing the TACO trade once more. He suggests that Trump's conciliatory remarks, along with those of Vice President Vance, indicate that the announced tariffs might be a mere negotiating tactic. And the markets seem to agree, with futures tied to the Dow Jones Industrial Average surging over 380 points.
The 10-year Treasury yield tumbled, the U.S. dollar strengthened, and gold prices climbed to new highs. Oil futures also rose, indicating a potential boost to the economy. Trump's previous tariff strategy of imposing high tariffs and then pausing to negotiate has become a familiar pattern, leading to the TACO (Trump Always Chickens Out) trade.
Brown sees Trump's new China tariff as another "escalate to de-escalate" move, with the overall level reaching 130% by November 1st. He predicts that if this is indeed another TACO situation, it presents a buying opportunity for investors, as the path of least resistance continues to trend upwards.
Additionally, the Federal Reserve's potential shift back to rate cuts, despite solid economic growth, could further strengthen the dollar, making it resilient to tariff threats. Market veteran Ed Yardeni shares this optimistic view, believing that both the U.S. and China will avoid the brink of a full-blown trade war, given the severe global economic consequences.
However, China remains defiant, stating that while it doesn't want a tariff war, it's not afraid of one either. The export controls on rare earths are a sovereign right, according to Beijing, and they're not backing down.
China's new rare earth export policy is a game-changer, going beyond the typical tit-for-tat trade war exchanges. Dean Ball, a former senior advisor in the White House Office of Science and Technology Policy, warns that this policy gives Beijing the power to exclude any country from the modern economy. Dali Yang, a political science professor, agrees, describing it as a decisive moment that reveals China's vision for a new global order, one that leverages control over strategic materials and technologies.
As we look beyond rare earths, it's clear that China is asserting its dominance in the high-tech arena. The world is taking notice and scrambling to build alternative systems, recognizing China's control over the arteries of high-tech civilization.
Stay tuned as the Fortune Global Forum in Riyadh, taking place on October 26-27, 2025, will bring together CEOs and global leaders to shape the future of business. Will the TACO trade prevail, or will a new era of trade relations emerge? The world is watching, and the stakes have never been higher!
