The meeting between Donald Trump and Xi Jinping in Beijing began in a conciliatory tone, but the first statements already showed that US-China relations remain complex. Xi Jinping stressed that the two countries should be “partners, not rivals”, pointing to the need for stable cooperation between the world’s two largest economies. At the same time, he made it clear that Taiwan remains the most serious flashpoint in bilateral relations. His warning that mismanaging this issue could lead to a “collision” or even “conflict” reminded markets that, behind the diplomatic setting of the visit, geopolitical risks remain high.
Trump adopted a more conciliatory tone, calling Xi a “great leader” and suggesting that US-China relations could become “better than ever before”. From the market’s perspective, the presence in the US delegation of the heads of some of the largest technology companies was also significant, including Nvidia’s Jensen Huang, Tesla’s Elon Musk and Apple’s Tim Cook. This shows that the talks are not only about tariffs and trade, but also about access to the Chinese market, exports of advanced technologies, semiconductors and the stability of global supply chains.
The potential impact of Trump’s visit on markets could be significant, but it will depend on whether the positive rhetoric is followed by concrete arrangements. Reports of a possible mechanism under which the United States and China would identify goods worth around USD 30 billion on each side for partial tariff relief could support risk appetite. Such a scenario would be positive for industrial companies, exporters, technology firms and businesses strongly dependent on trade with China. Shares of semiconductor manufacturers, automotive companies and large consumer groups could be particularly sensitive, as China remains either an important sales market or a key part of their supply chains.
At the same time, the scope for a strong rally in risk assets is being limited by the latest data on producer inflation in the United States. The BLS report published yesterday showed that the Producer Price Index rose by as much as 1.4% month on month in April, following increases of 0.7% in March and 0.6% in February. This was the largest monthly increase since March 2022. On an annual basis, PPI rose by 6.0%, marking the strongest reading since December 2022. The structure of the data was also uncomfortable for the market. Almost 60% of the April increase in PPI came from service prices, which rose by 1.2%, while goods prices increased by 2.0%. Energy prices rose particularly strongly, with gasoline prices up by 15.6%. The core measure, PPI excluding food, energy and trade services, increased by 0.6% month on month and by 4.4% year on year.
This means that Trump’s visit to China is taking place in a more difficult macroeconomic environment. Higher producer inflation increases the risk of costs being passed on to consumers, worsens the outlook for corporate margins and limits the Federal Reserve’s room for a rapid easing of monetary policy. In such an environment, even positive news from Beijing may be offset by rising bond yields and a stronger dollar, as the market will have to take into account the possibility that high interest rates will remain in place for longer, or that the Fed could adopt an even more hawkish stance.
The most positive scenario for markets would involve partial tariff relief, a declaration of greater openness of the Chinese market and a reduction in technology-related tensions. In such a case, a continuation of the rally on Wall Street could be expected, particularly in the technology, semiconductor and industrial sectors. Asian markets and the currencies of economies closely linked to the Chinese business cycle could also benefit.
However, the strong US PPI reading means that the market reaction may be more selective than euphoric, as investors will also be pricing in the risk of persistent inflation. A negative scenario, by contrast, would involve a lack of progress in trade talks or a hardening of rhetoric around Taiwan. In that case, a classic risk-off reaction could follow: falling equity indices, stronger demand for the dollar and higher demand for US Treasury bonds.
Trump’s visit to Beijing may therefore improve sentiment in the short term, but its impact on markets will depend on specific decisions regarding tariffs, technology and market access. A conciliatory tone from both leaders alone will not be enough to permanently reduce the risk premium, especially as Taiwan remains a strategic red line for Beijing. In addition, strong US producer inflation data limits the potential for a positive market reaction, as it maintains pressure on the Fed and reinforces concerns that global markets will have to operate in an environment marked simultaneously by geopolitical tensions, high financing costs and elevated inflation.
