US-China Trade War Truce Establishes Bilateral Board of Trade

The White House announced on 17 May 2026 that former President Donald Trump and President Xi Jinping agreed to establish a bilateral board of trade during a summit meeting. The agreement includes measures to promote stability amid the longstanding trade war, marking the most significant diplomatic engagement between the two nations in over four years. The framework is designed to adjudicate disputes and oversee the $691 billion annual goods trading relationship.\n\n## Context — why a US-China trade truce matters now]\n\nThe last major de-escalation occurred in January 2020 with the signing of the Phase One trade deal, which temporarily paused tariff escalations. The current macro backdrop features elevated Treasury yields, with the 10-year note trading near 4.5%, and persistent supply chain pressures. The triggering catalyst was mounting economic pressure on both economies; US inflation readings have remained stubbornly high, while China's export-driven growth model faces significant strain from prolonged tariff barriers and weak domestic demand.\n\nEscalating tariffs had reached a peak of 25% on over $370 billion worth of annual imports from China, according to US Trade Representative data. The economic drag from these measures, combined with political pressure in an election year, created a compelling impetus for negotiation. This move represents a strategic pivot from confrontation to managed competition.\n\n## Data — [what the numbers show]\n\nThe US goods trade deficit with China was $279 billion in 2025, according to the US Census Bureau. Tariffs affect approximately $370 billion of annual imports, with average rates on affected goods rising from 3.1% pre-trade war to 19.3%. China's retaliatory tariffs targeted $110 billion of US exports, heavily impacting agricultural commodities like soybeans.\n\nUS imports from China fell from a peak of $539 billion in 2018 to $427 billion in 2023 before partially recovering. The S&P 500 is up 8% year-to-date, significantly outperforming the Shanghai Composite's 2% gain. The announcement immediately lifted sentiment in futures markets, with E-mini S&P 500 futures rising 0.8% in after-hours trading.\n\n| Metric | Pre-Trade War (2017) | Current (2026) | Change |\n| :--- | :--- | :--- | :--- |\n| Avg. US Tariff Rate | 3.1% | 19.3% | +16.2% |\n| US Goods Deficit | $376B | $279B | -$97B |\n\n## Analysis — [what it means for markets / sectors / tickers]\n\nThe immediate beneficiaries are multinational corporations with extensive supply chain exposure to China. Semiconductor equipment makers like Applied Materials (AMAT) and Lam Research (LRCX) could see reduced cost pressures. Retail giants such as Walmart (WMT) and Target (TGT) stand to benefit from lower import costs on consumer goods, potentially boosting margins by 50-150 basis points. Agricultural exporters, including Deere & Company (DE) and Archer-Daniels-Midland (ADM), gain improved access to a critical market.\n\nA counter-argument is that the board may prove ineffective, serving as a talking forum rather than a mechanism for enforceable change, given deep-seated geopolitical tensions. Market positioning data indicates hedge funds had built significant short positions in yuan futures, which are now being rapidly covered. Flow is moving into Chinese equity ETFs like the iShares China Large-Cap ETF (FXI) and out of defensive sectors like utilities.\n\n## Outlook — [what to watch next]\n\nThe next catalyst is the 15 June 2026 deadline for the annual review of the Phase One trade deal, which will test the new framework's efficacy. Treasury Secretary Janet Yellen is scheduled to testify before the Senate Finance Committee on 22 May, where she will likely detail the administration's stance. Key levels to monitor include the USD/CNY exchange rate, with a sustained break below 7.20 indicating genuine yuan strength, and the VanEck Semiconductor ETF (SMH) approaching its all-time high of $300.\n\nTraders will scrutinize the composition of the board; appointments of former commerce secretaries or seasoned trade negotiators would signal seriousness. Any failure to agree on initial board members by the end of Q3 2026 would be a negative signal for the initiative's long-term viability.\n\n## Frequently Asked Questions\n\n### What does a US-China board of trade mean for retail investors?\n\nRetail investors may see reduced volatility in consumer discretionary and technology sectors, as the threat of further tariff escalations diminishes. ETFs focused on multinational corporations, such as the Vanguard FTSE Developed Markets ETF (VEA), could experience renewed inflows. Lower input costs may also translate to improved earnings for companies reliant on global supply chains, potentially boosting equity returns over the medium term.\n\n### How does this truce compare to the Phase One trade deal?\n\nThe Phase One deal, signed in 2020, was a transactional agreement focused on specific purchase commitments of US goods. This new board of trade represents a structural shift, aiming to create a permanent institution for resolving disputes. Unlike Phase One, it does not mandate specific import targets, instead focusing on process and stability, making it a more flexible but less immediately measurable framework.\n\n### Which US sectors were most damaged by the trade war?\n\nAgriculture and semiconductor equipment manufacturing endured the most significant losses. US soybean exports to China plummeted by over 75% at the height of the conflict in 2018-2019, according to USDA data. Semiconductor capital equipment companies faced severe restrictions on sales to Chinese clients, impacting revenue growth by an estimated 15-20% annually since 2022, as reported by SEMI, the industry association.\n\n## Bottom Line\nThe establishment of a bilateral board of trade signifies a material de-escalation in the US-China trade war, shifting focus from tariffs to structured dialogue.\n\nDisclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.\n\nExplore our analysis on [global supply chains and geopolitical risk for institutional investors.\n\nLearn more about tariff impacts on equity sectors.