With the tariff reprieve deadline behind us and the long-promised Trump-Xi phone call still nowhere on the calendar, global markets are once again squinting at the smoke and worrying about another, bigger fire. President Trump, in a late-night Truth Social post, called Xi Jinping “extremely hard to make a deal with” — not exactly the tone of a self-styled, delusionally confident dealmaker still expecting surrender.
And it might not be just bluster this time. Behind the posturing, investor confidence is clearly slipping. Liberation Day tariffs are live again in the background, and no one really knows what comes next.
The immediate question is what happens if that elusive Trump-Xi phone call never happens. Washington says it expects one this week. Beijing hasn’t confirmed anything. And the market is left guessing. Meanwhile in Geneva, last month’s tariff truce is already fraying. US officials claim China hasn’t delivered on commitments related to rare earths. Beijing accuses the US of imposing new discriminatory restrictions, including fresh export controls on AI chip tools and revoking student visas.
And round and round it goes all over again.
In trade terms, the landscape is a minefield. The US is now actively blocking shipments of jet engine parts to China and tightening curbs on Huawei. And Trump’s approval of Nippon Steel’s $14 billion acquisition of US Steel has only inflamed domestic opposition, with American labour unions accusing the administration of selling out jobs and ignoring national security implications.
Yet the bigger concern is what all this means for financial markets. With barely five weeks to go before the full slate of Trump’s tariffs reactivates, safe-haven flows are already distorting capital allocations. Gold has surged again this week. Treasury yields are seesawing, and the dollar, while still dominant, is increasingly facing second-guessing in emerging market FX desks.
If this impasse persists, wouldn’t we be witnessing the first contours of a financial realignment?
Emerging markets, in particular, are in the crosshairs. Trade-dependent economies that rely on stable commodity flows and predictable currency regimes are already jittery. Markets hate nothing more than uncertainty – not even bad news, which ultimately priced in – and with Trump’s trade agenda now increasingly shaped more by timeline pressure than negotiation detail, who knows how all the chaos will be contained?
Investors, meanwhile, are reacting with their feet. EM equities are posting net outflows week after week, and dollar debt spreads are widening despite relatively stable fundamentals in Asia and Latin America.
Ultimately, it’s Big Money’s instinct for preservation, propagation and profit that dictates the direction of global markets – so, naturally, they start asking questions. For example, what if the Trump-Xi call doesn’t happen? What if China, emboldened by its domestic stimulus and angry at Washington’s hardening posture, chooses to escalate?
Trump, for all his claims of being a master negotiator, has boxed himself into a timeline. Wednesday was the deadline for countries to submit alternate proposals to avoid tariffs, yet as of now, there is no grand deal, no summit, not even a scheduled call.
And markets have noticed. The broader fear isn’t just another round of US-China decoupling. It’s that such fragmentation now coincides with other global flashpoints. Talks between the US and Iran have reportedly broken down. Israel is again talking of pre-emptive strikes on Iran. Ukraine is deepening shock strikes into Russia. Israel is again bombing Syria. The cruel death rattle in Gaza continues.
The global risk map is lit up in more regions than at any point since the Cold War. Yet the cold calculus of financial markets means that its most frequently asked questions will not be about heartless murder of international law and innocent children in the Holy Land, but the fate of traditional safe havens that have protected the global financial elite’s wealth for the last century.
In this environment, can the dollar maintain its supremacy? On the one hand, geopolitical instability has always favoured the greenback. But on the other, the US now finds itself as a source of instability as much as a shelter from it. Japan has slowed its US debt purchases. Korea and Taiwan have been selling dollars to defend their currencies. Even the Hong Kong Monetary Authority is doing the unthinkable, diversifying away from Treasuries.
The Trump administration might believe that pressure builds leverage. But from a macro-financial perspective, pressure without clarity breeds only volatility. Investors don’t just fear tariffs. They fear that no one in the White House is sure what comes after them. The difference between a negotiating tactic and a policy vacuum matters deeply to markets, and guess which one we’re dangerously close to right now?
Meanwhile, domestic pressure is building. Labour unions are already speaking out against foreign takeovers. Congress is threatening oversight on national security grounds. The administration faces the risk of having overpromised on tariffs as a tool for reindustrialisation, and underdelivered on strategic clarity.
In this moment, it is more about credibility than just trade. If Trump fails to get a substantive agreement with China, and the tariff regime reignites without a cohesive global response, then the damage won’t be limited to commodities or manufacturing. It will be felt in bond markets, FX reserves, corporate risk models, and the very architecture of global trade planning.
Can the world afford a tariff war in the middle of so many open geopolitical fronts? Can the US simultaneously confront Iran, contain China, support Ukraine, and reassure jittery investors?
The question is no longer whether Trump will escalate. It is whether markets, allies, and adversaries are ready for the consequences. This week may provide an answer — or a prelude to a much more volatile second half of the year.
Copyright Business Recorder, 2025
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