The world reacted swiftly to the threat of Trump’s “Liberation Day” tariffs early in Q2, leading to a market downturn in April. However, Trump quickly announced a 90-day delay on tariffs for all countries except China, allowing the U.S. time to negotiate new trade deals. By mid-May, both the U.S. and China agreed to lower tariff levels, setting the stage for Q3, which ideally brings more clarity than the first half of the year, according to Saxo Bank‘s Q3 2025 Quarterly Outlook.
U.S.-China: Who holds the leverage?
China, still “the world’s factory,” wields significant influence through rare earth metals. While the world breathed easier when China resumed rare earth exports after a near-embargo in April, it remains in a strong position due to its control over essential industrial components like magnets. Building a non-Chinese supply chain could take years. Recently, as highlighted in Saxo Bank’s outlook, China announced it would limit export licenses to six months, potentially monitoring buyers and restricting supply for military applications.
The U.S. also holds leverage, particularly in jet engine components for Boeing and its ethane exports, crucial for plastics.
Trade deals and tariffs
As examined in Saxo Bank’s Q3 2025 analysis by John J. Hardy, head of Global Macro Strategy, and Ole Hansen, head of Commodities Strategy, Saxo Bank, attention turns to tariffs on other countries as the U.S. and China navigate their trade relationship. Reports indicate Trump will unveil a new tariff schedule targeting nations considered less critical or negotiating “in bad faith.” Q3 is expected to bring important trade agreements with traditional allies like Japan and Europe, though political factors may complicate negotiations.
Recession risks and economic outlook
Recession risks appear poised to rise in the second half of the year, influenced by a post-tariff slowdown and deteriorating economic indicators. The Federal Reserve’s high policy rate, relative to inflation, adds to the pressure, particularly as the housing market shows signs of distress. A mild recession is anticipated before inflationary growth resumes early next year, as noted in Saxo Bank’s outlook.
Despite tariffs acting like a tax that constrains growth, Trump’s immigration policies may also impact labor supply in sectors heavily reliant on undocumented workers.
Geopolitical tensions and shifting trade relationships will continue to shape the economic landscape, creating both challenges and opportunities as the U.S. navigates the complexities of its new trade regime, as noted by Saxo.
