On My Radar: Xi-Trump Collision Course

Written By Steve Blumenthal
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October 17, 2025
By Steve Blumenthal

“Failure in US-China trade relations is a disaster. Both countries understand that.”

– Ian Bremmer, American political scientist, author, and entrepreneur

Trade tensions between the U.S. and China are heating up again. President Trump threatens 100% tariffs on all Chinese imports, while President Xi strikes back with export controls on rare earths and advanced materials (the stuff that powers everything from EVs to fighter jets). It’s a serious escalation, not just another trade spat.

What’s at stake is much larger than tariffs. The world is watching the slow-motion decoupling of two economic giants - the unwinding of three decades of globalization. Supply chains are being redrawn, costs are rising, and the old assumptions about “cheap goods from China” are breaking down.

Markets haven’t fully priced it in yet, but if tariffs go live and rare earths get squeezed, volatility could come back fast.

This isn’t just about goods at Walmart; it’s about who controls the building blocks of the modern economy. This is one of those moments where politics and markets collide. It’s worth staying alert.

Grab that coffee and find your favorite chair. No need to reheat, as this week’s post is a quick read. The next few weeks are going to be eventful. Today, let’s take a quick look at why this matters.

On My Radar: 

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The Xi–Trump Collision Course

The real-life Game of Thrones is reaching a boiling point: trade deal or divorce. We need them, they need us, and the potential impact on the global economy.

We’ll take a deeper dive into this as it develops. I hoped to turn it into a Modern Day Game of Thrones update (as you know, I enjoy drawing similarities), but I need more time. A few thoughts:

The Trade War Returns and This Time It’s Bigger

The U.S. and China are again locked in a tariff-and-retaliation spiral. President Trump’s threat of a 100% tariff on all Chinese goods marks the most aggressive trade stance since 2018.

Beijing’s counterpunch: tighter export controls on rare earths and advanced materials, the lifeblood of tech and defense industries.

Why it Matters
A full-scale tariff war could re-ignite global inflation pressures, disrupt supply chains, and pressure corporate margins, especially in tech, autos, and clean energy.

The Weaponization of Supply Chains

China’s new export licensing rules give it leverage over critical materials: rare earths, battery metals, semiconductors, and precision machinery. The U.S. sees this as economic blackmail. Beijing sees it as self-defense against Western containment.

Each side is trying to prove it can live without the other, but the truth is, neither can.
The longer this standoff lasts, the faster global firms accelerate “China-plus-one” strategies… shifting production to India, Vietnam, and Mexico. This would be costly, inflationary, and slow.

Political Theater Meets Economic Reality

Both leaders are playing to domestic audiences. Trump’s hard line polls well ahead of the 2026 midterms. Xi, meanwhile, is under pressure at home: weak growth, property sector pain, and a tightening political circle after new military purges.

Each needs to look strong. The “Art of The Deal?” We’ll soon find out. Neither can afford to blink first.

Decoupling Becomes the Default

What began as a trade dispute has evolved into a structural decoupling of two competing economic systems. The U.S. is re-shoring and re-arming supply chains. China is doubling down on domestic innovation, self-reliance, and new markets in the Global South. The flow of goods, data, and capital is being rewired.
This is not a temporary fight. It’s the slow-motion breakup of the globalized world we’ve known for 30 years. It will reshape trade routes, investment strategies, and inflation trends for a decade.

Markets have been complacent. But if tariffs go live in November and China tightens rare earth exports, volatility could return fast.

Think: higher input costs, slower earnings growth, and rising safe-haven demand.

Bottom line: We may be entering a world where politics drives price action, not just profits.

If you missed the Game of Thrones On My Radar series of letters, I encourage you to take a look. You can find the links below. I hope you find them as fun a read as I had fun in writing them.

Tariffs and Inflation

“If you look at all the goods that we cover — which is a good representative sample of what you would find if you went to one of these very large retailers — the overall price increases are between 5 percent for imported goods and about 2.5 percent for domestic goods.”

Alberto Cavallo, Harvard Business School

The ultimate impact of all of this will come in the form of higher inflation. Yes, businesses will pass on the costs in the form of higher prices. To believe not is naive.

To date, there has been minimal collective pushback for the masses. The following is from Bloomberg’s Richard Abbey.

“Alberto Cavallo of the Harvard Business School Pricing Lab, which tracks the prices of more than 350,000 goods sold by the largest US retailers, has observed a gradual pass-through instead of a one-time, big jump in the level of retail prices:

It is a complex pricing decision for the firms. There’s a lot of uncertainty about the levels of those tariffs — whether they’ll be permanent or not, how they will impact each individual firm. And there are a lot of concerns also about how consumers will react. All this is preventing many of the adjustments from happening quickly.

Even though the tariffs announced on Liberation Day in April largely remain intact, markets shrugged them off until last week’s flare-up in tensions between Washington and Beijing. The resulting selloff shows an underlying lack of confidence, but measures of trade uncertainty remain well contained.

Without a deal with China, it’s reasonable to expect a faster pass-through of tariffs to consumers, according to Harvard’s Pricing Lab. At current tariff levels, Cavallo’s tracker finds the largest price increases concentrated in Chinese goods, like household products and electronics, as China already faces the steepest tariff rates. With tensions escalating, retailers appear more willing to pass along higher costs. For their part, consumers seem so far to accept hikes for Chinese imports as the political case has been made for them:

If you look at all the goods that we cover — which is a good representative sample of what you would find if you went to one of these very large retailers — the overall price increases are between 5 percent for imported goods and about 2.5 percent for domestic goods.

Ultimately, American consumers’ resilience comes at a cost, and tariffs will make it even steeper. The Washington–Beijing standoff will test how much pain households are willing to absorb in the name of economic brinkmanship.”

— Richard Abbey, Bloomberg

Xi and Trump. The “Art of The Deal?” We’ll soon find out.

 

Trade Signals: Update - October 16, 2025

Trade Signals is Organized in the Following Sections:

*Trade Signals basics: The Market Commentary section summarizes notable changes in the core key indicators: Investor sentiment, market breadth, stocks, treasury yields, the dollar, and gold. The Dashboard of Indicators provides a detailed view of all Trade Signals indicators.

Market Commentary: Japanese Prime Minister - Latest Update

I wrote last week about Japan's New Prime Minister, Sanae Takaichi, a hardline conservative and the newly elected leader of Japan's ruling Liberal Democratic Party (LDP). She has not yet been formally confirmed as the country's next prime minister. However, she remains the frontrunner and is actively securing support ahead of the parliamentary vote.

We are keeping an eye on this as she is in favor of massive economic stimulus (think money printing, QE). If elected and the Japanese liquidity faucet turned back on, the Yen would decline, yields would rise, and the Yen Carry Trade would be back in vogue. In short, the liquidity would be bullish for the system in the short term, inflationary in the long term.

Again, this is an “end of a long-term debt cycle” problem. We humans vote for the person giving us more sugar. I believe the U.S. will likely follow. If you missed last week’s On My Radar, you can find it here.

  • The confirmation vote, initially slated for October 15, has been postponed and is now set to convene on October 21, 2025. The prime minister designation vote will follow shortly after, likely determining the outcome by late October (potentially as late as October 27).

  • Takaichi’s confirmation is not guaranteed due to the LDP's minority status, but her party's dominance in the House of Representatives makes her the most likely candidate.

Notables This Week:

All eyes are on the trade war between China and the U.S.. The situation is worsening.

Oil is under pressure. The move up in gold is something to behold. The S&P 500 Weekly MACD trend indicator is turning towards a bearish signal. The Weekly MACD is bearish. The 10-year Treasury yield is nearing 4%; the Weekly MACD continues to signal lower yields. Key Macro Indicators - Investor Sentiment, Market Breadth, The S&P 500 Index (Stocks), The 10-year Treasury Yield (Bonds), and the Dollar

About Trade Signals

Trade Signals is a paid subscription service that posts the daily, weekly, and monthly trends in the markets (and more). Free for CMG clients. Not a recommendation to buy or sell any security. For discussion purposes only.

“Extreme patience combined with extreme decisiveness. You may call that our investment process.

Yes, it’s that simple.”

– Charlie Munger

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The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.

Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. 

 

Personal Note: Boston, Denver, Austin, and NYC

The highlight of the Penn State Homecoming game against Northwestern, other than time with old friends and Brie, was when the Blue Band alumni and brother Carl S. (aka Commander) took the field.

Brianna and Dad & Commander Playing his Sax - Penn State Homecoming Game 9-11-25

Penn State lost to Northwestern by a score of 22 to 21. Penn State was favored to win by 20 points. We were ranked #2 in the country, and it’s been an epic fall. The stadium chants were loud, “fire Franklin.” Penn State’s head coach, James Franklin, was fired the next day.

The text messages during the match were painfully funny. After the photo of Carl playing his saxophone hit our text chain, the sarcasm began… Referring to Carl: “You ‘da man today. Can you also play QB?” “And if you can’t play QB, can you please call the plays?” And finally, “Commander for head coach!”

A smile comes to my face when I think about some of the great coaches in my life. Reaching for anything significant requires risk. And the many losses, injuries, missed plays - but without them, the other side of the coin (winning) wouldn’t mean as much. The hard knocks we experience in life can lift us higher, or they can knock us down.

Sitting within the moment, it’s hard to remember that without the contrast, the highs wouldn’t be as exhilarating, absent the lows. It’s why we play the game.

In a playoff elimination game, bottom of the 11th inning with two outs and the bases loaded, a broken bat squibbler back to the pitcher gave all of the Philadelphia Phillies a sigh of relief. Orion Kerkering came in to relieve the Phillies’ star closer. He was pitching great. Then, Kerkering made a throwing error that will stick with him the rest of his life - season over. Memory of a goldfish, young Kerkering. Memory of a goldfish.

Players know his pain. The compassion shown to their teammate was a win: next one kid, next one. Head up. Ever forward!

The travel schedule is building back up. I’m in Boston next week for a fund manager dinner, heading to a financial AI conference in Las Vegas in early November, a Schwab advisor conference in Denver, and a family office event in Austin, Texas.

Best wishes to your young children/grandchildren on the sports fields this weekend. So much life learning happens in such a small window of time. May the contrast of challenge bring them to the heights of joy.

Have a great week!

Warm regards,

Steve

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Stephen B. Blumenthal
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CMG Capital Management Group, Inc.
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.

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