Trump-Xi Summit Eyed With Geopolitics & Trade In Focus

Geopolitics

Perhaps unsurprisingly, geopolitics will be right at the top of the agenda, considering the ongoing US-Iran conflict, where President Trump has recently described the ceasefire as being on ‘life support’.

It’s highly likely that the US will press China to exert its influence on Iran, both in terms of pushing for a de-escalation in the conflict, and a re-opening of the Strait of Hormuz. Of course, China is a significant buyer of Iranian crude, and has a vested interest in ending energy disruption given dependence on commodity flows out of the Gulf, though thus far China has maintained a relatively neutral stance on the whole, having not joined the US’ pressure campaign against Iran.

On this note, there is some speculation that a ‘quid pro quo’ arrangement could be on the cards, where China may signal a firmer stance on Iran, in exchange for the US adopting a softer stance on Taiwan. There appears relatively little prospect of this sort of deal being cut, however, not least considering the 11bln USD weapons sale that the US agreed with Taiwan at the tail end of last year, and considering that US officials have stressed there will be no revision to the US’ current statement that they ‘do not support Taiwan independence’. For context, Beijing would prefer that statement to be worded ‘we oppose Taiwan independence’.

Corporate Affairs

A plethora of CEOs from major US companies are joining President Trump on the visit, including the likes of Apple’s Tim Cook, Nvidia’s Jensen Huang, Tesla’s Elon Musk, and Boeing’s Kelly Ortberg, in addition to various senior representatives from a host of banks and other firms.

There are numerous focuses in terms of corporate affairs, though perhaps the most headline-grabbing announcement is likely to be a significant Chinese order of Boeing jets, which sources indicate could include as many as 500 737 MAX planes, as well as tens of widebody jets; such an announcement has been rumoured for some time now, and could well be a bullish catalyst not only for Boeing (BA), but for engine provider GE Aerospace (GE) as well.

Meanwhile, market access is likely to be a key focus for other CEOs participating in the trip, be that in terms of capital markets, financial services, the automotive sector, and semiconductors. Focus will also fall on consumer demand within China, particularly for the likes of Apple (AAPL), in addition to supply-chains considering President Trump’s continued efforts to reshore supply chains under the ‘Made in America’ plans.

Artificial Intelligence

In addition to all of the above corporate matters, heavy focus will also fall on the issue of AI, which is becoming one not only of major importance to both the US and Chinese economies, but which is also increasingly viewed as a matter of national security.

On this front, discussions between Trump and Xi are likely to centre on the idea of creating formal channels to discuss security risks relating to AI, especially considering the rapid pace at which models are evolving. US officials, per those close to the matter, are reportedly increasingly concerned about advancements that China has made in this realm, particularly the potential nefarious uses of the models that are now being rolled out. Talks, here, will come amid continued US chip restrictions and wider tech controls on China.

Speaking of those restrictions, the presence of the likes of NVDA’s Huang on the visit have fuelled some speculation that there could be a relaxation of certain measures on the cards. At present, Nvidia’s powerful H200 chip is permitted to be sold to China, providing that the Trump  Admin receive a 25% revenue share, though Beijing is not yet permitting any imports. A breakthrough on this front would, clearly, be a powerful catalyst for another leg higher in the Ai trade.

Trade

What would’ve once been the main issue of debate between the two sides has slipped down the agenda fairly significantly in recent weeks, though remains a key area to watch.

President Trump recently remarked that the US ‘needs more tariffs’, though after the Supreme Court struck down Trump’s tariff powers under IEEPA earlier in the year, any tariffs that are imposed will need to be enacted under less flexible aspects of US trade law, such as Sections 122, 232 and 301.

In any case, there remains a trade ‘truce’ in place between the two superpowers, having been agreed last year in South Korea, and not being due to expire until November 2026. An extension to this truce could well be discussed this week, though any agreement on an extension seems unlikely just yet, given how long there is left to run on the current ‘deal’.

Market Impact

On the whole, the summit seems unlikely to be a major market catalyst, certainly much less of one than the last meeting between Trump and Xi, at the tail end of last year.

By and large, the market has become somewhat bored of and fatigued with the idea of trade and tariffs, with that simply not being a narrative that participants are particularly focused on for now, with there being much ‘bigger fish to fry’, amid ongoing conflict in the Middle East, impressive earnings growth on Wall St, and the potential for near-term policy tightening from the likes of the ECB.

As for where the balance of risk lies, in a rare instance for a significant summit such as this, the risks actually lie towards the ‘right tail’, at least in the short-term. Clearly, President Trump has relatively little leverage even if he were seeking to escalate tensions with China, not least considering the continued surge in energy prices, and ongoing conflict in Iran, both of which continue to have a detrimental impact on the President’s approval ratings, in the runup to the midterms later this year. Consequently, the risk for equities at least is actually a bullish one, particularly if the meeting yields an unexpected breakthrough on the issues of trade, or Iran.

Speaking of the latter, it is worth bearing in mind that once Trump returns to DC on Friday, the situation in Iran is likely to become the market’s main focus once more, particularly as speculation mounts that military action could again be on the cards, amid apparent frustration with the ongoing stalemate in negotiations.