The US and China concluded the first day of talks with separate readouts. While the market is still awaiting a concrete trade agreement, the constructive tone from both sides suggests a gradual easing of trade tensions. Both countries are reported to be working toward a “Constructive Strategic Stability Relationship” and to be seeking to avoid a “Thucydides Trap.” The US has also extended an invitation for President Xi to attend a state visit in September. These positive developments are reinforcing growth expectations, which in turn are placing modest upward pressure on long-end CGB yields relative to the short end.
According to the White House, the high-level meeting has reaffirmed efforts to expand US business access to the Chinese market, as well as to facilitate Chinese investment into the US. The automobile and technology sectors are key areas to watch, with respective US business leaders reportedly expressing constructive signals following the meetings. US officials have also indicated agreements on China’s purchases of 200 US aircraft. Meanwhile, China is also expected to resume imports of US agricultural products. China’s annual agricultural imports from the US have declined sharply, from USD41.1bn in March 2023 to just USD10.8bn in March 2026. China, the world’s largest oil importer, is also expected to increase crude purchases from the US as it seeks to reduce reliance on Middle Eastern supply, which accounts for around 50% of its oil imports and roughly 9% of total energy consumption.
Markets are watching for potential easing in US tariffs, restrictions on advanced semiconductor exports, and China’s rare earth export controls. Any further progress in these areas would signal stronger Chinese growth momentum. China’s exports are already up 14.5% YoY year-to-date, with shipments to ASEAN and the EU rising by around 20%. If exports to the US were to recover from the current 10.9% year-to-date decline, this would add roughly 1.1% upside to total exports, given the US remains China’s third-largest export destination. Such a recovery could also generate positive spillovers into the labour market, further supporting the ongoing improvement in China’s domestic economic momentum.
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