President Trump’s China Tariff Threat: What It Means for Markets in 2025

US stocks dipped sharply following new threats from President Trump to raise tariffs on China, stirring memories of the April selloff tied to trade tensions. As the November 10 deadline for the US-China tariff truce approaches, investors are watching closely. Jeff Schulze, head of economic and market strategy at ClearBridge Investments, explains this selloff is the biggest in six months. It is however triggered by uncertainty over whether the tariff truce will be extended. If not, tariffs could spike back up to 145%, posing a real risk to market stability and trade relations.

Despite China imports down 30% YoY, China remains the US’s fourth largest trading partner, meaning any escalation could disrupt supply chains and market sentiment. Schulze remains optimistic going into 2026, citing a powerful policy mix of Federal Reserve rate cuts and peak stimulus from the “one big beautiful bill.” This combination typically emerges near recessions and supports buying opportunities during dips. He favors cyclical sectors like consumer discretionary boosted by expected higher tax refunds and financials. This could benefit from a steeper yield curve and increased loan activity.

Earnings and Valuations

While valuations seem stretched, Schulze expects earnings to surprise on the upside as GDP growth rebounds and wages moderate, improving corporate margins. He predicts earnings growth will broaden beyond just the big tech “MAG 7” names to include midcaps and value sectors. The government shutdown impact is seen as temporary, shaving about 0.15% off GDP per week but not altering long-term economic outlooks. The ongoing AI investment cycle keeps investor enthusiasm high despite concerns about overinvestment risks.

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