The China–U.S. tariff war has reached a boiling point, with both sides engaging in tit-for-tat tariff hikes, eventually pushing duties above 100%. If such extreme tariffs are finalized, it would effectively signal a decoupling of economic ties between the two largest economies in the world. This move could severely disrupt the global economy, potentially dragging it back by decades—an outcome with unimaginable consequences. It's no exaggeration to say that the tariff war, instigated by the U.S. President, could single-handedly crash global stock markets.

Despite the U.S.'s aggressive stance and arrogant rhetoric, expecting China to back down, what it received in return was a retaliatory strike. The good news is that, after its plans failed to yield the expected outcome, the U.S. has begun to adopt a more conciliatory tone and is no longer pushing the conflict further without restraint. The U.S. President took to Twitter multiple times to calm panicked markets and extended an olive branch to China, suggesting room for negotiation: “Xi Jinping is a good guy and a friend, we will find an agreement.” In other words, he is signaling a willingness for both parties to sit down and talk to prevent further escalation.

In addition, over the weekend, the U.S. announced the removal of tariffs on Chinese imports such as smartphones, computers, and semiconductors. Without a doubt, this move further reveals the U.S.'s weakening position, or rather, the weakening foundation of its economy. A string of events—including a plunging U.S. stock market, a falling dollar index, U.S. bond sell-offs, and mounting public pressure—have left the administration without the confidence to continue its hardline stance.

Considering the above, there's now a glimmer of hope as both sides show increasing willingness to resume negotiations. This scenario bears a striking resemblance to the 2018 tariff war, during which both countries eventually reached an agreement in 2019 after prolonged back-and-forths.

Turning to the stock market, the uncertainty surrounding the tariff war has caused markets worldwide to plunge for several consecutive days. Major indices across the globe have dropped between 10% to 20%, with no market spared from the panic. U.S. stocks are experiencing wild volatility, with daily gaps up or down, and even single-day swings of 5%–10%. This is far from normal market behavior—it's more of a short-term emotional release.

On a more positive note, the worst panic appears to be over, and the market has now entered a cooling-off period. With the U.S. announcing positive policy shifts over the weekend, there's a high chance that the stock market will begin to stage a recovery rally in the coming week.

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