A major economic and trade development with the potential to reshape market sentiment for the entire quarter emerged after market close on July 23rd, likely to alter the trajectory of A-shares in the second half of the year. According to official information from the Ministry of Commerce press conference, trade teams from both China and the US have completed in-depth communication and are now formally negotiating reciprocal tariff reductions on $30 billion worth of goods each. Both countries have simultaneously initiated industry surveys, are collecting corporate feedback, and seeking public opinion, with plans to finalise the specific products for tariff reduction and the implementation timeline soon. This represents the most sincere and viable signal of de-escalation in US-China trade cooperation in nearly two years. The protracted period of high tariffs, fears of supply chain decoupling, and pessimistic outlook for foreign trade are easing, which will directly alter market risk appetite, the flow of institutional capital, and determine which sectors will perform well in the coming half-year.
This détente is not out of goodwill from the US, but a compromise forced by threefold pressures.
The improvement in US-China trade relations is not a voluntary gesture of goodwill from the US, but a pragmatic choice necessitated by the convergence of three major challenges: the upcoming midterm elections, global geopolitical conflicts, and persistently high domestic prices. It is also the only viable path forward for the US at this moment.
First, the approaching midterm elections urgently require impressive economic results to win votes. With the US midterm elections scheduled for November 2026, the ruling party holds a slim majority in both the Senate and House, facing significant electoral pressure. The administration urgently needs tangible economic and diplomatic achievements to secure voters. Trade recovery and lower prices are the most palpable achievements for the public. Therefore, the US initiative to ease trade relations with China is fundamentally a strategy to pave the way for the elections.
Second, the situation in the Middle East consumes significant resources, leaving the US unable to simultaneously engage in high-intensity confrontation. The US is currently deeply entangled in the Middle East conflict, with substantial military and diplomatic resources tied up, while volatile international oil prices exacerbate domestic price pressures. The dilemma in the Middle East leaves the US without sufficient resources to simultaneously manage that crisis and engage in intense competition with China, forcing a choice to ease trade tensions to reduce the number of fronts.
Third, domestic inflation remains stubbornly high, and only China's complete supply chain can stabilise prices. Prices in the US remain elevated. The tariffs previously imposed on Chinese goods have largely been passed on to US local businesses and consumers, consistently raising prices across the country. Globally, only China possesses the complete industrial system, massive production capacity, and ability to supply at stable, affordable prices. No other country can replace China in helping the US stabilise its supply chain and lower prices. This is the core economic reason the US is willing to negotiate tariff reductions. These compounding real-world problems have forced the US to signal cooperation, leading to the current consultations on reciprocal tariff reductions of $30 billion each.
Market logic has completely reversed: The era of confrontation is over, and a period of long-term US-China trade cooperation has arrived.
For several years, two major uncertainties have weighed on A-share valuations and deterred significant foreign capital inflows: the persistent high tariffs from the US-China trade war, which have continuously compressed the profits of export-oriented factories and suppressed manufacturing stock prices, and the ongoing blockade in high-end technology sectors, which has created uncertainty about industry prospects and caused persistent volatility in the tech sector, preventing a long-term upward trend. Under the long-term suppression of external risks, the valuations of manufacturing companies reliant on exports have remained low. Foreign capital has mostly engaged in short-term trading and frequent selling, lacking the confidence for long-term bullish positions. With the initiation of consultations for $30 billion in reciprocal tariff reductions, the underlying logic of the interaction has completely changed. The market no longer anticipates continuous tax hikes, hardline pressure, or supply chain decoupling. Instead, it looks towards a new phase of long-term cooperation characterised by mutual concessions, phased tariff reductions, and a steady recovery in foreign trade. More importantly, this cooperation is not a temporary stopgap measure but a long-term communication mechanism established by high-level officials. Based on the new positioning of a "constructive strategic stable relationship" between China and the US, the two countries have established two regular communication platforms: a Trade Council and an Investment Council. This implies a significant reduction in future trade frictions, the removal of major external bearish factors, and the opening of a window for A-shares characterised by low risk and sustained positive catalysts.
A convergence of positive developments creates a window for low-conflict cooperation between China and the US.
This trade détente is not an isolated event. Positive developments in diplomacy, technology, and high-level exchanges are occurring simultaneously, forming a period of strong certainty for friendly relations. The diplomatic atmosphere has notably improved, with the US side issuing consecutive friendly signals, even proposing a joint China-US bid to host the World Cup. Official confrontational sentiment has significantly weakened, and the environment for non-governmental exchanges is improving. Technological blockades are beginning to ease. Both sides have confirmed a dedicated AI intergovernmental meeting in September, reopening high-end technology dialogue that had been suspended for some time, indicating a thaw in the comprehensive technological blockade. High-level communication channels are smooth, with multiple high-level exchanges and visits to the US steadily progressing. Normalised communication channels have been restored, laying the groundwork for deeper cooperation in trade, technology, and industry. In the short term, the US desire to ease relations is strong. Over the coming months, we can expect fewer US-China frictions, reduced confrontation, and increased communication. This rare window of cooperation will create an excellent external environment for A-shares to stabilise and rebound and for a major shift in sector style.
A-share sector landscape reshuffles: Low-valuation export manufacturing faces a valuation repair.
The benefits of this tariff reduction are concentrated in specific sectors, not resulting in a broad-based rally. The pattern of strong and weak sectors for the second half of the year is now set.
First, the core theme: low-valuation export manufacturing sectors are poised for a definitive upward valuation repair. The benefits of this reciprocal tariff reduction are most favourable for real manufacturing industries with a high proportion of exports to the US, persistently low stock prices, stable corporate earnings, and that have already experienced significant corrections. Three core directions have clear logic and high certainty for upward movement.
The home appliance sector, including refrigerators, washing machines, and kitchen appliances, is heavily dependent on the US consumer market. Previous high tariffs consistently compressed corporate profits. Lower tariffs will directly increase export profitability. Combined with the sector's generally low valuations, low institutional ownership, and stable business operations, there is ample room for subsequent upward movement.
The auto parts sector benefits from China's comprehensive and cost-competitive supply chain, which is a staple import for the US market. Export volumes are large, and overseas orders are stable. As trade barriers ease, the market will focus on improved new orders and profitability, with the industry's fundamentals having reached an inflection point.
The photovoltaic and energy storage new energy export sectors are highly competitive globally. They have long been suppressed by overseas trade restrictions, resulting in persistently low valuations and pessimistic market sentiment. As US-China trade risks dissipate, the industry's negative sentiment will be completely reversed. Orders, corporate profits, stock prices, and market sentiment will all recover in tandem. These major tracks simultaneously possess the advantages of favourable policies, rock-bottom valuations, stable earnings growth, and returning capital, leading to an overall upward re-rating of stock valuations.
Conversely, for high-valuation thematic sectors, any rebound is likely short-term sentiment, and such a rebound could present an opportunity to reduce positions. In contrast to low-valuation real manufacturing sectors, previously high-flying thematic stocks in areas like AI and computing are now in a downward cycle characterised by profit-taking, valuation correction, and deleveraging. Their medium to long-term upward trend has ended. Even positive news from the US-China trade détente may only trigger a short-term, modest rebound for these stocks, which will not change their long-term downward trajectory. Any significant rally in these high-valuation thematic stocks should be seen as a window for capital to exit. Investors should not chase prices and add positions.
Long-term market opportunity: The two major bearish factors suppressing A-shares for years are gradually easing.
Foreign capital was previously hesitant to take significant positions in A-shares due to two core concerns: the uncertainty of the US-China trade war and the risk of ongoing high-end technology blockades. Both of these long-term drags on A-share valuations are now gradually easing. On the trade front, both sides are advancing tariff reductions, improving expectations for the foreign trade landscape, and significantly enhancing the earnings outlook for export-oriented companies. In the technology sector, official dialogue has resumed, confrontation in high-end industries is continuously cooling, and the pessimistic market outlook for the tech sector is steadily being repaired. Overall risk appetite in the A-share market is comprehensively rising, and the market bottom is solidly confirmed. Low-valuation export manufacturing and new energy export-related sectors are no longer just experiencing short-term oversold bounces but are embarking on a long-term process of valuation repair.
Final Summary
The initiation of consultations for reciprocal tariff reductions on $30 billion worth of goods each between China and the US is one of the most significant and high-level policy inflection points for A-shares in the second half of 2026. The sector style for the year has decisively shifted. The rally in previously overheated high-valuation thematic stocks is ending, and low-valuation real export-oriented manufacturing has become the core market theme. With the cyclical improvement in US-China relations, the near-complete dissipation of external bearish factors, the continuous release of policy benefits, and the long-term low valuations of quality sectors, multiple favourable conditions are aligning. The upward trend in the export industry chain is supported by policy, corporate earnings, and capital inflows. The sustainability of this trend is assured, and it will not be merely a short-lived rally.
Important Investment Risk Disclaimer
The US-China tariff reduction is currently only in the consultation phase. Negotiations may face setbacks or may not meet expectations, posing a risk of sector pullbacks. Geopolitical changes, fluctuations in overseas demand, raw material price increases, and other overseas trade barriers will continue to affect the earnings performance of export-oriented companies. This article is solely a macroeconomic market analysis and does not constitute any investment advice for individual stocks. The stock market carries risks, and investment requires caution.
Data sources for this article include official press conference content from the Ministry of Commerce on July 23, 2026, authoritative trade reports from Xinhua, China News Service, and Beijing Daily, official framework documents from the US-China Trade Council and Investment Council, macroeconomic and trade analysis reports from Western Securities and UBS, and global inflation research data from the Yale Budget Lab and the IMF.