CSC Zhou Junzhi: The China-US Busan meeting changes the global asset direction

Core Viewpoints

Whether it is the need for the United States to focus more on domestic affairs in the 2026 midterm elections; or China's strong industrial production successfully resisting tariff games; or the weak U.S. economy needing a tariff game easing to create a breathing window, reaching a positive reconciliation during the meeting of the leaders of China and the U.S. in October is the best choice at present.

The recent consensus on China-U.S. economic and trade relations indicates that the global tariff confrontation that began in early 2025 has come to a pause, and the game around total tariffs between China and the U.S. has entered a "great easing" period, but the real competitive and cooperative game between China and the U.S. has not ended. On the contrary, the G2 competition in technology and security between China and the U.S. has just "entered the state." The world may witness a round of competition between China and the U.S. in technology and strategic security in 2026.

The shift from tariff confrontation to technology and security competition between China and the U.S. is the political and economic significance of this meeting in Busan. Accompanying this, global assets are transitioning from the risk aversion, technology, and global credit fragility of 2025 to the technology, investment, and global credit recovery of 2026, a major turning point in asset pricing is imminent.

Summary

On October 30, the leaders of China and the U.S. met in Busan, South Korea, to discuss issues such as China-U.S. economic and trade relations in depth and agreed to strengthen cooperation in economic and trade fields. The Chinese side is willing to work with the U.S. side to maintain and implement the important consensus reached during the leaders' meeting.

After the meeting, the Ministry of Commerce announced the joint arrangements reached by both sides during the economic and trade consultations in Kuala Lumpur to address each other's concerns. The consensus reached mainly includes the following four aspects:

First, reduction of tariff barriers. ① The U.S. will cancel the 10% so-called "fentanyl tariff" on China; ② The 24% reciprocal tariff will continue to be suspended for one year. ③ The Chinese side will adjust its countermeasures against the aforementioned tariffs from the U.S. accordingly. Both sides agreed to continue extending certain tariff exclusion measures.

Second, relaxation of export controls. The U.S. will suspend the implementation of its 50% penetration rule on export controls announced on September 29 for one year. The Chinese side will suspend the implementation of relevant export control measures announced on October 9 for one year and will study and refine specific plans.

Third, slowdown of targeted economic and trade competition. The U.S. will suspend the implementation of its 301 investigation measures against China's maritime, logistics, and shipbuilding industries for one year. After the U.S. suspends the relevant measures, the Chinese side will also suspend its countermeasures against the U.S. for one year.

Fourth, consensus on multi-field cooperation. Both sides also reached a consensus on fentanyl drug control cooperation, expanding agricultural product trade, and handling related corporate cases. Both sides further confirmed the results of the Madrid economic and trade consultations, with the U.S. making positive commitments in investment and other fields, and the Chinese side will properly resolve issues related to TikTok with the U.S.

1. The effectiveness of China-U.S. dialogue meets market expectations.

In 2026, the U.S. will face midterm elections, which are often years when domestic contradictions erupt. Domestic issues closely related to people's lives, rather than foreign affairs, dominate voting tendencies. Historical experience shows that the ruling government often faces "midterm punishment," and the upcoming 2026 poses challenges to domestic stability due to societal divisions in the U.S., highlighting the pressure on Trump's administration Therefore, at the end of 2025, when the leaders of China and the United States meet, Trump's choice to first "compromise" on diplomatic issues is the best option.

Another important reason is that China has successfully responded to the current round of trade war initiated by the United States, thanks to its complete supply chain advantages. This is also a realistic constraint for the United States to choose to reach a reconciliation.

Having seen this clearly, the market has long anticipated that the leaders of China and the United States would release positive signals regarding trade competition at the APEC summit.

On October 18, Vice Premier He Lifeng held a video call with U.S. Treasury Secretary Janet Yellen and Trade Representative Katherine Tai, agreeing to hold a new round of China-U.S. economic and trade consultations as soon as possible. On October 23, the White House press secretary announced Trump's itinerary, stating that he would meet with our leaders for bilateral talks on October 30. Since October 18, there have been frequent signs of easing before the China-U.S. negotiations, and market risk appetite has significantly recovered.

After the announcement of the results of the China-U.S. negotiations, the Chinese stock market fell while bonds rose, which does not indicate that the market believes the negotiations fell short of expectations, but rather that this good news was priced in early.

2. "Dust Settled" and Global Tariff Landscape Clarified.

In this negotiation, the United States canceled the 10% tariff on fentanyl, while for the 24% reciprocal tariff, the U.S. chose to continue the suspension for another year.

The U.S. tariff rate on China has been reduced from 57.6% to 47.6%, but it is still significantly higher than other economies (10%~20%).

Firstly, the reciprocal tariff rates agreed upon by the United States with countries (regions) with which it has signed trade agreements range from 10% to 20%, with the United Kingdom having the lowest at 10%, the European Union, Japan, and South Korea at 15%, and Vietnam at 20%, all significantly lower than the U.S. tariff rate of 47.6% on China.

Secondly, the United States has agreed on a tariff rate of 40% for transshipped goods with Southeast Asian countries such as Vietnam and Thailand, which is also lower than the 47.6% tariff rate.

The global tariff landscape is now clear, with U.S. tariffs on China being significantly high, and the reshaping of the global supply chain has begun, with further deepening expected in the future.

Any increase in U.S. tariffs will accelerate the overseas expansion of Chinese enterprises, i.e., the transfer of the industrial chain.

After the trade war in 2018, China entered the overseas expansion 1.0 phase, with more enterprises heading to ASEAN and Mexico. After the trade war in 2025, China will enter the overseas expansion 2.0 phase, with enterprises moving towards more diversification, with Africa, Latin America, and the Middle East becoming new destination choices.

This year, China's exports of capital goods to Africa, Latin America, and the Middle East have surged, marking the start of the overseas expansion 2.0 journey.

3. After the Tariff Tide Recedes, the Focus of China-U.S. Competition Begins to Emerge.

The focus of China-U.S. competition lies in technology and strategic security. As mentioned in the 14th Five-Year Plan, major power competition is "high winds and waves," and we need to "seize the technological commanding heights," "dare to struggle, and be brave to fight," competing for technological and industrial dominance in the new round of industrial revolution The recent meeting between the leaders of China and the United States marks the end of a phase in the global tariff restructuring that began in early 2025, signaling a significant easing in the competition over overall tariffs between the two countries.

However, the true competitive and cooperative game between China and the U.S. has not ended; on the contrary, the G2 in technology and security fields has just "entered the state." The world may witness a new round of great power competition in technology and strategic security between China and the U.S. in 2026.

Fourth, the global asset pricing trend has begun to quietly shift.

This year's most important theme in the global capital markets is undoubtedly the trade war. Why is this judgment made?

First, let's look at the performance of global stocks, bonds, currencies, and commodities from January to September this year, which perfectly reflects a global tariff war.

The first point is that during this period, gold and silver performed the best, while crude oil, rebar, and other black commodities performed the worst. This perfectly illustrates the risk aversion brought about by the global tariff game and the weak terminal demand. The two waves of gold price increases perfectly narrate the impact of this trade war in its first and second halves. In the first half, the tariff war mainly affected expectations, leaving the market confused about the direction of the derivative impacts caused by a broadly defined tariff restructuring. How will the global supply chain, trade chain, and the financial order based on these be reshaped? During this stage, gold, as the primary safe-haven asset, experienced a strong rally, while black commodities, representing economic contraction, weakened, and the dollar, representing the global financial order, fell sharply. In the second half, the impacts of the tariff war began to seep into actual growth, with the U.S. economy slowing down, unemployment pressures emerging, and Powell shifting towards easing, leading to another rise in gold. At this point, gold and U.S. Treasuries rose together, pricing in the trade war's impact on the U.S. economy most clearly.

The second point is that Chinese risk assets—Chinese stocks—performed exceptionally well. It can be said that the performance of Chinese A-shares and Hong Kong stocks this year is one of the most significant marginal changes among assets in recent years. After all, Chinese stocks had been trapped in a bear market for the past three years, underperforming major global indices. This year, Chinese stocks reversed their downward trend, becoming the strongest stock index among mainstream countries, overshadowing the previously "outstanding" U.S. stocks.

Behind this "comeback" is the extraordinary competitiveness and resilience of China's manufacturing sector in this trade war. Chinese exports not only did not decline but even maintained a year-on-year growth rate of over 6% against the trend, completely reversing pessimistic expectations in China. Coupled with the early-year optimism ignited by Deepseek regarding China's technological competitiveness, Chinese risk assets began to rise against the wind.

The third point is that the U.S. dollar is the weakest among major currencies, while the euro, yen, and renminbi are relatively strong against the dollar. The performance of the dollar and non-dollar currencies serves as a perfect mirror for 2024. The weakening of the dollar can be said to be the second-largest marginal change in assets for 2025. In 2024, the dollar index and U.S. technology were strong, creating a narrative of U.S. exceptionalism. This year, the weakening dollar index reflects the fact that the U.S. is increasingly bearing the consequences of the tariff war it initiated.

In comparison to the U.S.-China trade war in 2018, when the dollar remained strong, this round of tariff competition has seen the dollar shift from strength to weakness, even becoming the weakest currency, suggesting another fact—that a global tariff war impacts not other countries' economies but primarily undermines the U.S.'s own credit. This is also why, before Powell eased monetary policy in August, both the dollar and U.S. Treasuries fell, with discussions of a debt crisis emerging around U.S. long-term bonds The fourth point, the standout in stocks is technology. The strongest stock index of the year—Chinese stocks, among which the Sci-Tech 50, ChiNext Index, and Hang Seng Tech are the top three indices, significantly outperforming the CSI 300 and Shanghai Composite Index. This indicates that technology is a bright spot in Chinese stocks. Looking at the weak U.S. assets, in the first three quarters of 2025, U.S. bonds and exchange rates fell together, and U.S. assets are narrating the "global overturning of U.S. credit" under the trade war. However, U.S. stocks, especially technology stocks, have maintained significant growth, repeatedly creating the "Nasdaq miracle," which also narrates the strong logic of technology. The strength of technology in both China and the U.S. essentially reflects that China and the U.S. are gradually leading a global technological revolution.

Looking ahead, if the overall tariff game retreats, four major trends will follow.

First, the transfer of Chinese production capacity will follow closely, reshaping the global supply chain. The uncertainty contained in a round of uncertain tariff restructuring globally, the cracks in U.S. credit, and the weakening of the U.S. economy are gradually receding. The most expressive signal of these changes is gold, which will also face a re-examination of its price by the market. We suggest that in asset pricing for 2026, gold may be the first asset to welcome a reversal.

Second, emerging countries such as Africa, the Middle East, and Latin America that are receiving the transfer of Chinese production capacity will see corporate capital expenditures deepen, leading to a round of capital expenditure expansion that drives global recovery and a commodity bull market.

Third, the U.S.-China game is shifting towards technology and strategic security, which means that investment in technology and security will increase, moving from tariff uncertainty. Under this trend, technology and copper are strong assets.

Fourth, the tariff confrontations involving most countries will fade, and the uncertainty of global trade and financial order will converge. The narrative of the tearing of U.S. credit will also come to an end, so the U.S. dollar will not repeat its weakness in 2025.

The U.S.-China game has shifted from tariff confrontations to competition and cooperation in technology security, which is the economic implication of the recent U.S.-China Busan meeting. Accompanying this, global assets are transitioning from safe-haven, technology, and fragile global credit to investment, technology, and global credit repair. Asset pricing is ushering in a major turning point.

Authors: Zhou Junzhi, Xie Yuxin, Source: CSC Research Macro Team, Original Title: "The U.S.-China Busan Meeting Changes the Global Asset Direction | CSC Macro · Zhou Junzhi Team"

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