An In-Depth Analysis of Current Status, Market Mood, and Future Outlook
September 2025
The relationship between the world’s two largest economies continues to define global trade dynamics, with recent developments suggesting both cautious optimism and underlying structural tensions. Following President Trump’s call with Chinese leader Xi Jinping on September 19, 2025, markets are parsing signals for clues about the future trajectory of this critical bilateral relationship.
Current Status: A Delicate Truce Under Pressure
The Numbers Behind the Trade War
The current US-China trade relationship exists under what experts describe as a “tariff truce” that has been extended multiple times. President Trump has signed an executive order extending the current tariff truce with China by another 90 days, moving the expiration date to November 10, 2025. However, this truce comes at a significant cost.
Under the truce, the US has been charging a 30 percent duty on Chinese goods, while US goods are subject to a 10 percent levy. The economic impact has been substantial on both sides, with the Trump tariffs amounting to an average tax increase of nearly $1,300 per US household in 2025.
Recent Diplomatic Developments
The September 19 call between Trump and Xi marked a significant moment in bilateral relations. President Donald Trump said that he had made progress on several issues with Chinese leader Xi Jinping in a call Friday morning, including on the “approval of the TikTok deal,” and that he plans to meet with Xi in person this fall and in China early next year.
More importantly for trade relations, President Donald Trump and Chinese leader Xi Jinping on Friday agreed to kick off a series of meetings with a summit in South Korea in six weeks, building on efforts to manage a trade war and determine control of the popular TikTok app.
Market Mood: Cautious Optimism Amid Structural Concerns
Immediate Market Response
Financial markets have responded with measured optimism to recent diplomatic overtures. The FTSE 100 closed flat while US markets hovered around previous highs, suggesting investors are adopting a wait-and-see approach. The mixed performance reflects uncertainty about whether diplomatic progress will translate into meaningful economic benefits.
The TikTok Wild Card
The TikTok situation has become unexpectedly central to broader trade relations. Relations have soured between the two countries in recent months from Trump’s tariffs and other trade restrictions. At the same time, TikTok parent company ByteDance faces a Sept. 17 deadline to divest the platform’s U.S. business or potentially be shut down in the country. The resolution of this issue could serve as a bellwether for broader cooperation.
Expert Skepticism
Despite diplomatic progress, experts remain cautious about fundamental changes. Heiwai Tang, director of the Asia Global Institute in Hong Kong, said neither Washington nor Beijing currently have much incentive to fully back down from the trade war. This assessment reflects the deeper structural issues at play beyond immediate tactical considerations.
Economic Impact: Winners, Losers, and Global Ripple Effects
Domestic US Impact
The trade war has created significant economic distortions within the United States. According to this model, real wages in the US decline by 1.4% in 2028 and GDP falls by approximately 1%, with differences across states. Manufacturing in the US may enjoy a temporary surge in employment but employment in services and agriculture declines.
The tariff structure has fundamentally altered American trade patterns. As a result of numerous Trump administration actions, the average US tariff on all goods imports from the rest of the world increased from 3.0 percent to 20.8 percent between January 20, 2025, and August 27.
China’s Adaptive Response
China has demonstrated remarkable resilience in adapting to trade war pressures. In 2025, China’s GDP grew by 5.2% in April to June despite trade war escalation due to Chinese government support and front-loading shipments by Chinese factories before tariffs. Amidst weak demand and impact of US tariffs, China had increased infrastructure spending and consumer subsidies.
The country has also strategically diversified its trade relationships, with China decreased its oil imports from the United States by 90% and increased its oil imports from Canada in response to US measures.
Global Consequences
The trade war’s impact extends far beyond the bilateral relationship. Economic modeling suggests across all scenarios of “reciprocal” tariffs – lead to a net global welfare loss of (-1.2%), a stronger loss for the US (-2%), and a sharp fall in trade (-5% overall), especially between the US and China (-90%). Supply chains tilt sharply away from their traditional patterns.
Sectoral Deep Dive: Where the Battle Lines Are Drawn
Technology and Critical Materials
Recent tariff actions reveal strategic priorities. July 30, 2025: US imposes 50% tariff on a range of semi-finished copper products and copper-intensive derivative goods, effective August 1, 2025. This reflects growing concern about supply chain vulnerabilities in critical materials.
Services vs. Goods
An important distinction often overlooked is that tariffs only apply directly to bilateral goods, not services, and therefore, the trade war doesn’t risk all of China’s exported value-added to the United States. This creates opportunities for continued cooperation in service sectors even amid goods trade tensions.
Future Outlook: Three Scenarios
Scenario 1: Gradual De-escalation (Probability: 40%)
Recent diplomatic engagement suggests both sides recognize the economic costs of continued escalation. The planned summit meetings could lead to gradual tariff reductions, starting with sectors where cooperation is most beneficial to both economies.
Key indicators to watch:
- TikTok deal implementation
- Tariff reduction announcements before November 10 deadline
- Summit meeting outcomes
Scenario 2: Managed Competition (Probability: 45%)
Ultimately, the Trump-Xi summit will not resolve the deep-rooted structural tensions in the U.S.-China relationship. However, it can be used to impose strategic discipline on that rivalry—making it more predictable, less susceptible to crisis, and more manageable for global markets.
This scenario envisions continued high-level tensions but with established guardrails to prevent economic warfare from spiraling out of control.
Characteristics:
- Maintenance of current tariff levels with periodic adjustments
- Sectoral agreements in specific areas
- Regular diplomatic engagement to prevent escalation
Scenario 3: Renewed Escalation (Probability: 15%)
Despite recent diplomatic progress, structural factors could drive renewed conflict. Domestic political pressures, technological competition, and geopolitical tensions over Taiwan and other issues could overwhelm economic pragmatism.
Risk factors:
- Failure to implement TikTok deal
- Escalation in South China Sea tensions
- Domestic political pressures in election cycles
Strategic Implications for Business and Markets
Supply Chain Adaptation
Companies continue adapting to the new reality of US-China trade relations. The trend toward supply chain diversification accelerated by the trade war appears irreversible, even if tariffs are reduced. Businesses are building redundancy and geographic diversification into their operations.
Investment Flows
Foreign direct investment patterns have shifted dramatically. US investment in China has declined while Chinese investment in Southeast Asia and other regions has increased, creating new economic linkages that may outlast the current trade disputes.
Currency Implications
The trade war has created new dynamics in global currency markets. The Chinese yuan’s managed depreciation and the dollar’s strength reflect underlying trade tensions, with implications for global financial stability.
Conclusion: Navigating Uncertainty in a Multipolar Trade World
The current state of US-China trade relations reflects a fundamental transition from the post-Cold War era of economic integration to a new period of strategic competition. While recent diplomatic engagement offers hope for tactical de-escalation, the structural forces driving conflict—technological competition, national security concerns, and domestic political pressures—remain powerful.
For businesses and investors, this environment demands new strategies that account for persistent uncertainty. The era of assuming continued globalization and market integration has ended, replaced by a need for greater supply chain resilience, geographic diversification, and political risk management.
The path forward likely involves neither complete decoupling nor full normalization, but rather a managed competition model where both nations seek to minimize economic disruption while protecting their perceived strategic interests. Success will be measured not by returning to the pre-2018 status quo, but by establishing predictable rules for economic competition in an increasingly multipolar world.
Singapore’s Strategic Position: Caught in the Crossfire Yet Poised for Opportunity
The Dual Impact on Singapore
Singapore finds itself in a unique position as the US-China trade war unfolds, experiencing both significant challenges and unexpected opportunities. Singapore on Monday downgraded its economic growth forecast for this year, as the trade-dependent nation braced for the effects of sweeping US tariffs, with the 10 per cent tariff expected to have a “significant impact on Singapore’s economy.”
Economic Headwinds and Growth Downgrades
The immediate impact has been sobering for Singapore’s economic outlook. Economists lowered the growth outlook for Singapore and Hong Kong in the second half of this year on increased uncertainties from US President Donald Trump imposing higher tariffs on China’s exports. The trade-dependent city-state has been forced to recalibrate its expectations in response to global trade disruptions.
Singapore and South Korea, and Thailand are all expected to lose more than 0.1% of their GDP via this channel through the indirect effects of reduced global trade flows. This reflects Singapore’s deep integration into global supply chains, particularly in electronics and semiconductors.
The Supply Chain Disruption Challenge
The trade war could disrupt global supply chains, leading to lower export demand: As the US imposes tariffs on Chinese goods and vice versa, global trade slows, reducing demand for Singapore’s exports, particularly in electronics, semiconductors, and manufacturing components.
This disruption poses particular challenges for Singapore’s key industries. The nation’s role as a critical node in global electronics manufacturing means that any slowdown in US-China trade directly affects its economic performance.
Strategic Advantages: Neutrality and Infrastructure
However, Singapore’s strategic positioning also presents significant opportunities. Singapore, due to its strategic location, robust infrastructure, and strategic neutrality, plays a vital role in stabilising global supply chains, especially in high-tech sectors, amid escalating US-China tariff wars and technology competition.
This neutrality becomes increasingly valuable as companies seek to diversify their supply chains away from direct US-China dependencies. Singapore is likely to gain US import share over the next decade as other countries lose theirs, while Singapore could benefit from trade rerouting away from China.
The Trade Diversion Opportunity
Singapore stands to benefit from what economists call “trade diversion effects.” Trade diversion effects have also had an impact on countries in East and Southeast Asia with Taiwan getting the largest boost. While Taiwan has captured the most significant benefits so far, Singapore’s advanced infrastructure and business-friendly environment position it well to capture additional diverted trade flows.
Relationship with Both Superpowers
Singapore’s diplomatic balancing act has become more critical than ever. China looks to Singapore to help secure global supply chains from US trade war turmoil, with Chinese premier saying both countries must uphold ‘true multilateralism’. This indicates China’s recognition of Singapore’s strategic importance as a stable partner amid global trade uncertainties.
Simultaneously, Singapore runs a trade deficit with the US and imposes lower tariffs on US imports due to the US-Singapore Free-Trade Agreement, meaning the threat of reciprocal tariffs is low. This provides Singapore with some insulation from direct US tariff retaliation.
Sectoral Analysis: Winners and Losers
Technology and Semiconductors: The US’ competitive disadvantage in chip production may lower semiconductor tariff risks for Singapore, potentially benefiting its substantial semiconductor manufacturing and assembly operations.
Financial Services: Singapore’s position as a regional financial hub could be strengthened as companies seek neutral jurisdictions for trade finance and currency hedging amid US-China tensions.
Logistics and Trade: The port of Singapore may see increased throughput as trade routes adjust to avoid direct US-China flows, though overall volumes could decline due to reduced global trade.
Policy Response and Adaptation
Singapore’s government has demonstrated characteristic pragmatism in responding to these challenges. The downward revision of growth forecasts reflects realistic assessment of external headwinds, while continued investment in infrastructure and digitalization positions the nation for long-term competitiveness.
The emphasis on maintaining strategic neutrality while deepening economic ties with both superpowers exemplifies Singapore’s approach to navigating great power competition.
Looking Forward: Singapore’s Strategic Calculus
For Singapore, the key will be maximizing the benefits from trade diversion while minimizing the costs from overall global trade reduction. This requires:
- Infrastructure Investment: Continuing to enhance port, airport, and digital infrastructure to handle redirected trade flows
- Regulatory Flexibility: Adapting financial and trade regulations to accommodate new supply chain configurations
- Diplomatic Balance: Maintaining strong relationships with both the US and China while preserving strategic autonomy
- Economic Diversification: Reducing dependence on traditional trade flows through innovation and service sector development
Singapore’s experience illustrates the complex dynamics facing smaller economies caught between competing superpowers – simultaneously vulnerable to their conflicts yet potentially positioned to benefit from their strategic competition.
The November 10, 2025 tariff truce deadline and the planned Trump-Xi summit will serve as critical inflection points, potentially determining whether this managed competition model can succeed or whether the world’s two largest economies will continue their drift toward economic separation.
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