China promises to help companies slammed by tariffs, as talks with the US left in limbo

China's Politburo has pledged support, including financing and tax rebates, for domestic companies impacted by US tariffs, as bilateral trade talks remain inconclusive regarding the August 12 deadline for higher tariffs. While US Treasury Secretary Bessent described discussions as "constructive," no extension was agreed upon, leaving the tariff outlook uncertain. This ongoing trade friction is already evident in China's economy, with industrial profits declining 1.8% in H1 and 4.3% in June.

Analysis

The lack of a definitive outcome from US-China trade talks in Stockholm injects significant uncertainty into the market, with the August 12 tariff deadline looming without an agreed-upon extension. While the US side acknowledged "constructive" discussions, the discrepancy between US and Chinese statements on extending the deadline highlights the fragility of the current trade truce. In response, China's Politburo has signaled a defensive policy stance, pledging state support through financing and export tax rebates for companies impacted by tariffs and aiming to stimulate lagging domestic demand. Evidence of economic strain is already apparent, with China's industrial profits declining 1.8% in the first half of the year and accelerating to a 4.3% drop in June. This coincides with a slowdown in Q2 GDP growth to 5.2%, a figure some analysts believe may overstate the economy's actual performance. Furthermore, the dispute is expanding beyond trade, with the US threatening additional tariffs over China's energy purchases from Russia, indicating a deepening of geopolitical tensions.

Key Decisions for Investors

• Given the high uncertainty surrounding the August 12 tariff deadline and tangible evidence of economic slowdown in China, investors should review and potentially reduce exposure to sectors highly dependent on US-China trade flows.
• The primary near-term catalyst is the decision on the tariff extension, making it critical to monitor official communications from both Washington and Beijing to navigate potential market volatility.
• China's stated policy of boosting domestic demand amid falling industrial profits suggests a strategic pivot; long-term investors should assess opportunities in Chinese companies focused on internal consumption over those reliant on exports.