Beijing stays firm as markets anticipate trade truce before Trump-Xi talks

US President Trump and Chinese President Xi are set to meet in Washington on 24 September. From a markets angle, the most intriguing aspect may not be what is ultimately signed, but rather the negotiating stances each leader brings to the table.

President Xi appears fairly at ease entering the talks. China's export sector has proven far more resilient to the trade war than Washington likely anticipated, with the country's global trade surplus on pace to top $1 trillion for a second consecutive year.

If anything, Beijing has demonstrated it holds its own leverage, particularly through rare earths and critical minerals, where export curbs can quickly create difficulties for US manufacturers.

President Trump, for his part, also wields considerable leverage. Tariffs, semiconductor restrictions, and access to the US market remain highly consequential. Yet, the sense of urgency seems greater on his side.

The upcoming November midterm elections are adding complexity for him. Trump's approval rating was 35% in the latest Reuters/Ipsos poll, and Republicans trailed Democrats 44% to 37% on the generic congressional ballot ahead of the 3 November midterms. The economic strain from the Iran conflict and rising fuel costs has only intensified the political pressure.

That dynamic, in my view, gives Trump a strong reason to seek an outcome that he can present as an economic victory from the meeting. Given the circumstances, that would be a typical expectation.

Consequently, that should shape what markets anticipate from the summit in Washington this week.

The most likely outcome is not a comprehensive US-China trade deal, but rather an extension of the current trade truce.

There may be additional pledges from Beijing on purchases of US farm goods, aircraft, or energy, and potentially some easing on rare earth access. However, these would remain symbolic gestures and acts of goodwill to preserve the status quo.

Both sides will probably touch on AI, Taiwan, fentanyl, and Iran as well. But for markets, trade remains the most direct channel of impact.

An extended truce would not signal a sudden desire to boost global growth prospects so much as a move to remove another downside risk.

Seen this way, markets should recognize that the threshold for success is quite low. Equities and risk-sensitive Asian currencies may stay supported, but a major or broad market rally is unlikely.

In my view, markets do not need Trump and Xi to resolve the US-China relationship this week. They simply need them to avoid disrupting what is already holding together.