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Head of Investment Strategy, Sustainability and Research, CIO EMEA
key takeaways.
Trade tensions between the US and China have escalated with a series of threatened new restrictions on rare earths, additional tariffs and software export controls
This escalation in trade relations should not be underestimated, but may be seen as a prelude to talks before a series of deadlines
Our expectation is the US and China reach a compromise, given their economic interdependence; risks of escalation remain, however, and we are monitoring every development closely
In portfolios, our overweight positions in fixed income and gold, and our underweight position in US equities, look set to withstand a period of elevated uncertainty.
On 9 October, China announced limits on exports of its refined rare earths, a globally strategic market that it dominates. The following day, President Donald Trump said the US would impose an additional 100 percent tariff on Chinese imports as well as broad technological export controls from 1 November. The tit-for-tat measures mark a substantial hardening in US-China relations and triggered a risk-off reaction from financial markets. Our expectation is that the two nations will reach a compromise in the coming weeks; an escalation would have more profound implications for the global economy.
Since a meeting in Geneva in May 2025, the US and China had consistently put off imposing mutually-threatened import duties and restrictions. Weeks ahead of the formal 10 November end to a negotiated truce, the diplomatic tone has now changed, and the stakes are higher.
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China has announced major export controls on rare earths and other materials, most of which will go into effect from 8 November (see table for full set of deadlines). These controls cover a broad range of materials, and China says that special approvals will be needed for export. At the very least, this will slow supply chains. It may halt deliveries completely to certain countries and companies and in the longer term, could accelerate the development of alternative sources. In the short run, the Chinese restrictions complicate US efforts to stockpile rare earths, metallic elements fundamental to everything from the magnets in electric vehicle motors, to smartphones, medical imaging and missiles.
Still, China was careful to clarify for the benefit of other trading partners, that its rare earth restrictions are not a ban, and that export applications for civilian use and licensing exemptions are possible. At the same time, China added 23 US companies to its “unreliable entity list,” which limits their ability to operate within China. China also plans to impose fees on US-owned, operated or flagged ships this week, and has instructed customs officers to begin a crackdown on imports of US semiconductor chips.
Recent comments by both sides have been more conciliatory, but escalation remains possible, and we expect a volatile few weeks
In reaction, President Trump threatened 100% tariffs on Chinese imports, and new export controls on critical chips and software designed to slow China’s technological advances from 1 November, and suggested that he may cancel a planned meeting with President Xi Jinping. More recent comments by both sides have been more conciliatory, but escalation remains possible, and we expect a volatile few weeks ahead.
Financial markets reacted to last week’s escalation with a broad series of risk-off moves. US equities sold off – in particular, technology stocks– US 10-year Treasury yields fell 10 basis points to 4.03%, gold held at USD 4,000 per ounce, Brent crude oil hit a five-month low, Bitcoin fell 8%, and the Swiss franc strengthened against the US dollar.
The change in US-China trade relations should not be underestimated, but may be seen as a prelude to negotiations around the extension of the current tariffs beyond the 10 November deadline. It is still feasible that we see a compromise around the export of high-tech US goods to China in return for Chinese refined rare earths and their related exports to the US.
Our expectation is therefore that the two nations reach a compromise before 1 December. The two economies remain interdependent and neither can achieve its domestic growth objectives without the other. Nevertheless, we expect these additional US tariffs on Chinese goods to be applied for several weeks, creating some temporary shortages. In the near term, this should weigh on US technology stocks, and more broadly US equities, as well as Chinese equities while stock market volatility rises. Haven assets like gold, core government bonds and the Swiss franc are likely to strengthen in response to higher uncertainty. In equities, we expect defensive names in sectors such as healthcare or utilities to outperform.
The two economies remain interdependent and neither can achieve its domestic growth objectives without the other
The risk is that the two sides fail to reach a compromise, and that the situation escalates, with implications for the global economy and financial markets. If that were to happen, it could affect the 2026 investment outlook more fundamentally. We will follow each and every development.
Our client portfolios look capable of weathering the immediate period of higher uncertainty, thanks to our preference for fixed income and gold, and an underweight position in US equities. Japanese equities, where we have a portfolio overweight, have suffered in response to the latest developments, but we also have exposure to more defensive Swiss equities. We are monitoring our preference for emerging market equities, and at our Investment Committee this week, we will review whether further adjustments are warranted.
Key Deadlines / Events in US-China Relations
Deliberate sequencing of key deadlines points to a mutual desire to maintain talks and potentially reach a deal.
20–23 October - 15th Five-Year Plan to be formalised during the 4th Plenum of the 20th Central Committee of the Chinese Communist Party
29–30 October - President Trump’s possible visit to South Korea, following a scheduled trip to Japan
31 October – 1 November - Asia-Pacific Economic Cooperation (APEC) Summit in South Korea, likely attended by President Xi Jinping
1 November - US’s 100% additional tariffs on China to come into effect
8 November - China’s new export controls - on rare earths, battery materials, superhard materials - to come into effect
1 December - China’s extraterritorial export controls on rare earths to come into effect.
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It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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