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CONTRIBUTORS

Christy Tan

Investment Strategist
Franklin Templeton Institute

Lawrence Hatheway

Global Investment Strategist
Franklin Templeton Institute

After a cordial and apparently agreeable meeting, the Trump-Xi summit in Busan, South Korea, concluded without a formal announcement.

However, some emerging details suggest tangible progress. President Trump was clearly positive about the meeting, noting that agreements were reached on Chinese purchases of US soybeans and agricultural products, and that the US will reduce ‘fentanyl’ tariff rates on Chinese exports from 20% to 10%.1 Trump also noted ‘no roadblocks’ on Chinese exports of rare earths under an extendable one-year deal. Further details may be forthcoming.

The positive tone builds on the fruitful outcomes of bilateral trade discussions between the US and South Korea and Japan in recent days. Accordingly, despite relatively few details on the US-China discussions, we believe the Trump-Xi summit will be seen as building on progress achieved this week in lowering global trade tensions.

Consequently, today’s events may be viewed positively by investors.

As mentioned, positive discussions between the US, South Korea and Japan have already culminated in agreements that will reduce US tariffs in exchange for commitments by both countries to invest in US industries and to purchase US goods.

Specifically, South Korea has pledged to invest US$350 billion2 in various US sectors, with US$200 billion coming from official sources (at a rate of US$20 billion per year for the next decade) and US$150 billion coming from private sources into US shipbuilding enterprises. South Korea has also pledged to purchase US aerospace equipment.

With Japan, the US has agreed to lower tariffs to 15% (including for autos) in exchange for Japan’s commitment to invest US$550 billion3 in US ‘strategic’ sectors, to increase its imports of US aerospace and military goods, and to purchase US$8 billion4 in US agricultural exports.

Progress in reducing trade tensions is a welcome support for global equity markets. Against a favorable backdrop of strong corporate profits (e.g., in the ongoing US third calendar quarter reporting season) and a resilient global economy, reductions in trade uncertainty are an added plus. To be sure, today’s US Federal Reserve message that further rate cuts are not a ‘given’ was a modest disappointment for stock and bond markets, but overall sentiment remains anchored by corporate and economic fundamentals, and now by a lessening of trade tensions across the North Pacific. Improving investor sentiment is a key underpinning for our theme of a broadening of returns across capital markets.

Finally, in terms of risks to the view, US trade policy this year has been unpredictable and prone to reversal. Uncertainty could therefore recur. Also, the US Supreme Court will shortly hear oral arguments on the constitutionality of country-level tariffs. Depending on their decision (which may not arrive until 2026), US tariff policy could abruptly change again.

  1. Source: “Trump, Xi Agree on 10%P Tariff Cut, Postponement of Rare Earth Export Controls”, BusinessKorea.
  2. Source: “Korea-U.S. Agree on Tariff Negotiation Details”, BusinessKorea.
  3. Source: “Fact Sheet: President Donald J. Trump Implements A Historic U.S.-Japan Framework Agreement”, The White House.
  4. Ibid.

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