China ETFs Surge After Surprise Tariff Cut

All eyes are on China ETFs this week as investors digest the latest developments from trade talks between Chinese and U.S. officials that took place over the weekend.

The iShares MSCI China ETF (MCHI) surged 3% on Monday. The rally followed a surprise breakthrough in which the U.S. agreed to lower tariffs on Chinese imports from 145% to 30%, while China reduced its retaliatory tariffs on U.S. goods from 125% to 10%. The new, lower rates will apply for 90 days as both sides negotiate a longer-term agreement.

The move was a dramatic shift from just a week earlier, when President Donald Trump had merely floated the idea of lowering tariffs to 80%. The significantly larger-than-expected cut offered a jolt of optimism to markets. 

The SPDR S&P 500 ETF Trust (SPY) also jumped nearly 3% on the news, trimming its year-to-date loss to 1%, while the Vanguard Total International Stock ETF (VXUS) rose less than 1%, pushing its 2025 gains up to 11%.

One Step at a Time

While the weekend agreement marks meaningful progress, uncertainty remains about what a final trade deal might look like. The original tariff barrage in April, with rates exceeding 100% on both sides, was likened to an economic embargo, threatening to grind trade between the world’s two largest economies to a halt.

Now, with talks back on track and tariffs temporarily dialed down, investors are growing more hopeful. Treasury Secretary Scott Bessent emphasized that the U.S. does not want to “decouple” from China, signaling a willingness to find common ground.

MCHI on the Move

Chinese equities are among the year’s top performers despite the tariff turmoil. MCHI is up 17% year to date, handily outperforming both VXUS and SPY. The recent tariff relief only adds to investor enthusiasm.

For now, markets are betting that the worst-case scenarios are off the table. But the path forward is still uncertain. Whether this 90-day window leads to a lasting deal will likely determine the next move for China ETFs.