Investors should brace for more trade-war volatility as ‘high-stakes game of chicken’ between U.S. and China begins

For a while, it seemed investors had begun to move past President Donald Trump’s global trade conflicts, until a post on Truth Social last Friday suggested a significant increase in tariffs on Chinese imports, leading to substantial losses in both stocks and cryptocurrency values.

However, calm seemed to return to financial markets shortly after, as Trump reassured the public that there was no immediate concern regarding China. Furthermore, the Chinese government provided some clarifications, asserting that the recently announced export controls on rare-earth metals wouldn’t amount to an outright ban, with licenses being made available for qualifying applications.

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This quick return to a de-escalatory stance highlights the close economic ties between the U.S. and China, as noted by analysts at Evercore ISI. The acknowledgment from both governments may offer some reassurance to investors. Although this easing of tensions helped restore market confidence on Monday, the temporary trade truce that boosted global stocks throughout the summer appears to be precariously stable once again.

This indicates that the recent wave of volatility in financial markets could be just one of many before year-end. According to Ed Mills, a policy analyst at Raymond James, China and the U.S. might test each other’s boundaries in the ongoing negotiations, a tactic he describes as “escalate to de-escalate.”

“It’s a high-stakes game between the world’s top two economies,” Mills explained to MarketWatch in a recent interview.

Mills pointed out that a critical date for investors is November 1, the new deadline set by the Trump administration for a comprehensive agreement. However, he anticipates that discussions may extend beyond that date. “We’ve often characterized the trade and tariff situation as a roller coaster. Trump’s comments on Friday have revived the ride for the next round,” he remarked.

U.S. stocks saw an upswing on Monday after Trump tempered his earlier statements. The Dow Jones Industrial Average DJIA posted its most substantial gains in a month, while both the S&P 500 SPX and the Nasdaq Composite COMP witnessed their largest upticks since May. Earlier, Treasury Secretary Scott Bessent disclosed on Fox Business that Trump and Chinese President Xi Jinping are scheduled to meet at the Asia-Pacific Economic Cooperation summit in South Korea later this month.