The US-China trade war tariff truce: Buy or sell Chinese assets?

What happens to markets when the US freeze Chinese assets amid rising geopolitical tensions? Financial journalist Paul Reid unpacks the latest data and reveals what traders need to know about navigating Chinese assets in 2025.

Whenever global powerhouses such as the US freeze Chinese assets, China responds in kind, and escalation begins. But, after prolonged trade war tensions, the US and China managed to reach a temporary 90-day agreement to slash tariffs in early May. This “tariff truce” is huge news that has already affected Chinese assets. It means those punishing import taxes on each other’s goods were cut sharply for three months, giving both economies some breathing room.

For example, the 145% US tariffs were reduced to 30%, and China’s tariffs fell from 125% to 10%. Such drastic cuts explain why Chinese exports in April moved to the upside as companies raced to ship goods while tariffs remained low (so-called “front-loading” exports). This boosted manufacturing activity despite the overhanging trade tensions.

Key takeaways

• If the US–China talks go well: Expect a relief rally in yuan and Chinese assets. Plan which buy orders and tighten stops on any USDCNH longs (since yuan would strengthen).
• If the US freeze Chinese assets again: Safe-havens (like USD) may jump, while Chinese assets, such as stocks, could dive. You might trim exposure ahead of key deadlines or even consider hedging.
• If data remains mixed: We may see range-bound conditions. Selling option strangles (if you trade options) or simply range-trading as discussed can yield steady gains. Just be prepared to exit if the range breaks.

Why the tariff truce matters to Chinese assets

Lower tariffs make Chinese products more competitive abroad, potentially lifting sales for export-focused firms. We saw evidence of this in April’s data: China’s industrial output grew 6.1% year-on-year in April, a strong number (only a slight dip from March’s 7.7%) and better than economists expected. Clearly, factories kept busy, thanks in part to this tariff relief and China’s manufacturing grit.

The tariff truce is generally positive and contributed to a short-term rally in Chinese equities and a stabilization of the yuan. If you’re trading the Hang Seng Index (HK50) or Chinese tech shares (like Alibaba or BYD), the tariff reprieve is a green light, at least temporarily.

It's clear  Chinese assets and Hong Kong markets perked up when the deal was announced; however, remember it's a 90-day deal. So, mark your calendar for its expiry (around mid-August 2025). If progress stalls, trade-war risks could return fast, potentially reversing these gains.

Yuan on the radar: Currency trends and the PBOC

Let’s zoom in on the Chinese yuan. In mid-May, USDCNH (the US dollar vs offshore yuan) hovered around 7.23, near its weakest levels since the pandemic era. 

During April’s tariff scare, the yuan briefly depreciated sharply—USDCNH spiked above 7.35 at one point—but then recovered once the People’s Bank of China (PBOC) stepped in and the tariff truce was announced. Beijing clearly wants to keep the yuan stable during sensitive trade talks. Officials have repeatedly said the exchange rate isn’t a bargaining chip in negotiations, and they’ve shown a preference for stability.

What does the recent trend tell us? 

Essentially, the yuan’s value has been seesawing with trade war news.

• Tariff threat means a weaker yuan.
• Tariff truce means a stronger yuan. 

Meanwhile, the PBOC has been managing the daily fix (the midpoint reference rate) to signal stability, not letting it drift too weak. This resulted in the yuan ending April roughly where it started, after a volatile ride.

Currency trend insight for traders

When trading USDCNH and other Chinese assets, you need to think like a central banker and a news trader. The PBOC’s priority is to prevent a currency spiral. A drastically weaker yuan (let’s say USDCNH > 7.5) could spook Chinese markets and complicate trade deal talks, but it’s unlikely China will let that happen easily. On the other hand, if a comprehensive trade deal seems likely, the yuan could strengthen (USDCNH moves down towards 7.0–7.1) as confidence returns.

A sensible approach could be to trade the range and the news on most Chinese assets. Currently, a rough short-term range might be around 7.15 to 7.35. You could sell USDCNH near the top of the range (around 7.30+), with a stop placed above 7.40 in case of a clean breakout, targeting a drop back to mid-7.20s.

Conversely, you could buy USDCNH near 7.15–7.20 support if it gets there on overly optimistic news, with a stop perhaps below 7.10, aiming for a bounce higher. Essentially, fade the extremes unless a genuinely game-changing headline hits.

Speaking of headlines, keep your news feed on. If there’s a hint that the 90-day tariff truce will be extended or made permanent, you could see the yuan rally (USDCNH tumbling) very quickly. In that scenario, having a take profit order ready for any USDCNH shorts around the psychologically key 7.00 level could bank your gains before the PBOC possibly intervenes to cap rapid appreciation (they don’t want it too strong either).

On the flip side, if talks collapse and tariffs snap back, don’t be a hero. The yuan will likely breach new lows. You might then ride the USDCNH momentum for relatively long,  but scale out profits in stages (7.40, 7.50, etc.), since authorities might jump in with support (like tighter capital controls or a strong fix) to stabilize things.

In summary, for USDCNH: trade the news, respect the range, and always respect the PBOC. Their invisible hand can turn the tide in this pair swiftly.

US freeze: Chinese assets, strategies, and risk management

We’ve analyzed the data; now let’s talk about an actionable strategy. How can you, as a trader, capitalize on these insights while protecting yourself? Let’s break it down by asset and approach:

Hang Seng Index (HK50)

This index, consisting of the top-performing Chinese assets, is an excellent measure of China’s economy. China’s mixed data and tariff relief lean bullish for now, but with caution. You might build a long position on dips, aiming for a medium-term target (perhaps, a previous high or a key Fibonacci retracement level). For instance, if HK50 is trading at 20,000 after a pullback, you could target 21,500 if optimism continues. Use the recent swing low (e.g., 19,500) as a stop-loss area. This gives a favorable risk/reward.

Trade small enough that a 500-point move against you won’t wipe you out; the Hang Seng can be volatile. Consider using index futures or CFD stop loss orders that respect market hours. And keep an eye on US markets, too; a US downturn can spill over to HK.

USDCNH

As discussed, look to play the range unless a breakout forces your hand. If you’re range-trading, size your positions modestly, currency pairs can move hundreds of pips on unexpected news. A 0.1 move in USDCNH (7.25 to 7.35) is a big deal in FX terms, so use stops. And if you do play a breakout, don’t chase a runaway move.

It’s wiser to wait for a pullback after the initial spike; often USDCNH will retrace a bit after a knee-jerk move, giving a better entry. Remember, CNH (offshore yuan) can sometimes gap if the onshore market is closed and news hits. To manage this, you might reduce positions or hedge off-hours if a major announcement (like a trade deal deadline) is imminent.

Alibaba (BABA)

Alibaba is one of the most famous Chinese assets, and its fate is tied to Chinese consumption and tech sentiment. With retail data weak, you may want to adopt a shorter-term trading approach rather than buy-and-hold for now. One strategy is “buy the rumor, sell the news” around earnings or Singles’ Day (China’s big shopping holiday). For example, if stimulus measures to spur consumption are rumored, you could go long on BABA leading into it and then take profit once markets price it in (often, actual announcements can lead to “sell the fact” dips). 

Take note: Tech stocks can swing wildly. Use trailing stops to lock in gains on a rally. And if the trade goes against you, say BABA breaks below a long-term support on bad news, honor your stop and step aside. It’s better to miss a possible comeback than to hold a sinking position out of hope. You can always re-enter when the trend stabilizes.

BYD

BYD hit the top of the Chinese assets list thanks to the buzz around electric vehicles. This EV maker is benefiting from both export strength and China’s push for green tech. If industrial production stays resilient and Beijing continues promoting electric vehicles, BYD could outperform. A possible trade is a momentum trade on a breakout: if BYD stock clears a key resistance (let’s say HKD 250) on strong volume, that could signal a new up-leg. You could buy the breakout, with a stop perhaps 5-10% below to allow for volatility. 

BYD can be news-driven (think: subsidies, Tesla competition, etc.). Always check the calendar for any industry policy events or earnings. If a trade war escalation were to put new tariffs on Chinese autos (the US still has a 100% tariff on EVs from China, which remains a risk for expansion), it could hurt sentiment, so keep an ear out for any such talk in negotiations.

Risk management basics

As always, diversify and don’t put all your funds into one stock trade. Maybe balance a BYD position with something like an index or another sector to smooth things out. No matter which Chinese assets you trade, always position size within your comfort zone, use stop loss orders, and have a take profit plan. China’s market can whipsaw on headlines. One week, you’re trading hopeful news of a deal. The next, a tweet or comment could sour the mood. To survive and thrive, plan for multiple scenarios.

Final thoughts on the US freeze on Chinese assets

When trading Chinese assets, clarity is power. Each piece of China’s April puzzle gives us insight: 

• Strong exports mean support for the yuan and industrial plays.
• Weak retail means more stimulus, but be cautious on consumer stocks.
• Property slump means you should watch for policy rescue. 
• Low inflation means PBOC leeway, and possibly a softer yuan.

Having said that, the markets are often like the weather. Professionally created forecasting methods can prove accurate, but they are not time machines. Things can change with the drop of new data, and many times the markets behave counter to logic, so always use Stop Loss to protect your account from the unexpected… and there will be plenty of surprises when it comes to trade wars.

Finally, remember to stay humble and flexible. I’ll emphasize that no matter how confident a setup looks, use a stop and respect it. It’s better to take a small planned loss than a catastrophic one. The goal is to trade smart and stay in the trading process.

Geopolitical risks, like when the US freeze Chinese assets, are a reminder that no market moves in a vacuum, and traders must factor such shocks into every strategy.

The Chinese proverb says, “Wise men make proverbs, but fools repeat them.” In trading terms, learn from each cycle, but don’t assume the exact same playbook will repeat without variation. Stay alert, adjust to new information, and you’ll be well-positioned to gain from China’s evolving story in the weeks ahead.