U.S.-China Trade War 2025: Trump’s Achilles’ Heel and Wall Street’s Volatility

📌 U.S.-China Trade Tensions and Trump’s Achilles’ Heel ― A Stock Market Driven Power Struggle

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Part I. The Trade War Rekindled ― A New Wave of Tension

In October 2025, global financial markets once again found themselves engulfed in turmoil. Just months earlier, investors had been clinging to the belief that the boom in AI and new industries might offset concerns about an economic slowdown. But by mid-October, rising tensions between the U.S. and China abruptly shattered that fragile optimism, throwing markets back into a state of volatility and fear.

On October 15, Wall Street closed mixed. At first glance, index movements seemed modest, but a closer look at intraday swings told a different story. Investors had to simultaneously digest three escalating risks: the re-ignition of the U.S.-China trade war, mounting fears of a prolonged government shutdown in Washington, and the shockwaves from China’s rare earth export controls. Together, these overlapping pressures fueled intense market volatility.

The Dow Jones Industrial Average slipped by 17.15 points (–0.04%) to finish at 46,253.31. On the surface, this looked like negligible movement, but it largely reflected defensive behavior from blue-chip stocks. The S&P 500 rose 26.75 points (+0.4%) to 6,671.06, while the Nasdaq gained 148.37 points (+0.66%) to close at 22,670.08. On paper, these results looked like a standard “mixed close.” In reality, investors endured far greater psychological stress than the raw numbers suggested.

Intraday trading resembled a roller coaster. The S&P 500 surged as much as +1.2% early in the day on strong bank earnings and gains in select tech names, only to reverse downward in the afternoon as fears over renewed U.S.-China clashes and a drawn-out shutdown resurfaced. Toward the close, the index rebounded once more, reflecting markets utterly lacking direction. This kind of whiplash illustrated just how fragile the market’s footing had become.

The most symbolic gauge of this anxiety was the VIX (CBOE Volatility Index), widely known as Wall Street’s “fear index.” The VIX measures expected future volatility priced into S&P 500 options. In stable markets, it usually sits in the 12–15 range, but when anxiety spikes it shoots above 20. On this day, the VIX spiked to 22 intraday before easing to close at 20.7. This surge showed that investors were no longer treating the selloffs as a mere short-term correction — they were bracing for structural risks. In other words, markets had entered a “heightened tension state,” vulnerable to being jolted by even the smallest headlines.

The volatility wasn’t just technical noise. It stemmed from three underlying concerns:

1. U.S.-China Trade War Resurgence: China’s rare earth export controls and Washington’s combative rhetoric signaled escalation.

2. Prolonged Government Shutdown Risks: A potential freeze in federal functions threatened data releases and policymaking, further fueling uncertainty.

3. Earnings Season Ambiguity: While banks delivered strong results, investors questioned whether other sectors could follow suit.

The lurking fear was that if U.S.-China tensions went beyond rhetoric and turned into new tariffs and retaliatory trade measures, equities could tumble sharply again. That anxiety weighed heavily on sentiment, leaving investors feeling volatility far more acutely than index levels suggested.

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Part II. Bank Earnings Surprises and a Tech Rebound

What briefly steadied the market’s nerves was none other than bank earnings surprises. After JPMorgan, Goldman Sachs, and Wells Fargo beat expectations the previous day, Bank of America (BoA) and Morgan Stanley followed suit on the 15th, reporting results that far exceeded analyst forecasts.

BoA stock surged +4.37% in a single session, while Morgan Stanley jumped +4.72%. Even JPMorgan, which had already impressed investors, added another +1.2%. Bank stocks are often viewed as a barometer of U.S. economic health, so their strong performance was interpreted as a sign that “the U.S. economy remains fundamentally solid.”

Sam Stovall, Chief Investment Strategist at CFRA Research, told CNBC: “The banks hit home runs, beating expectations on both revenues and profits. This is a strong signal that the U.S. economy is still resilient. Combined with the Fed potentially cutting rates later this month, it supports investor optimism.”

In other words, robust bank earnings didn’t just lift financial stocks — they reassured the broader market that the U.S. economy had not lost its footing despite external pressures.

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The Tech Rebound ― AMD’s Surge and the AI Race

Among tech names, the star of the day was AMD. Oracle announced it would deploy 50,000 of AMD’s latest AI GPUs into its cloud infrastructure, sending AMD stock soaring +9.4% in a single day.

In a market where Nvidia has dominated AI chip demand, AMD’s massive supply deal sparked expectations that the balance of power in AI semiconductors could begin to shift. Oracle shares also rose +1.55% on the news. Nvidia, meanwhile, slipped –0.1%, as investors cautiously questioned whether its monopoly-like grip could start to weaken.

The AI chip market has become a central driver of global equity sentiment. Since 2024, Nasdaq’s rally has been powered largely by AI hype. AMD’s surge, therefore, wasn’t just a stock-specific event — it was seen as a signal that the AI race is entering a more multipolar phase.

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Dual Impact of Banks and Tech

Financials and tech rallied for very different reasons — one on present earnings strength, the other on future growth potential. But together, they had a common effect: stabilizing market sentiment.

Banks anchored confidence in the economy with solid results.

Tech reignited excitement about growth, innovation, and the AI theme.

The combination helped shield the indexes from deeper declines and enabled a rebound even amid headline-driven turbulence.

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Part III. China’s Hardline Stance and “Trump’s Achilles’ Heel”

Beneath Wall Street’s whipsaw action lies the more fundamental issue: the U.S.-China trade war has reignited. Beijing imposed sanctions on five U.S. subsidiaries of South Korean shipbuilder Hanwha Ocean, signaling it was ready to strike not only American firms but also its allies’ supply chains to increase pressure.

In response, Trump escalated his rhetoric. He accused China of deliberately halting purchases of American soybeans to hurt U.S. farmers and said he was considering banning imports of Chinese cooking oil and other products. But industry experts noted the limits of such measures. Chinese cooking oil exports to the U.S. are already negligible. Reuters quoted Chinese waste-oil exporters saying the last shipments left ports in late March to early April — meaning the trade has effectively been halted for months. Trump’s threat thus rang hollow as a practical weapon.

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China’s Discovery of Trump’s Weak Spot

The Wall Street Journal reported on October 14 that “China has identified Trump’s Achilles’ heel in this trade conflict: his obsession with the stock market.”

Beijing believes Trump is overly sensitive to stock market declines, a conclusion drawn from several recent episodes:

📉 Case Studies of Trump’s “Stock Market Achilles’ Heel”

1. May 2025: Trump imposed tariffs exceeding 100% on Chinese imports. China retaliated with counter-tariffs and rare earth export restrictions. Wall Street plunged, and Trump partially rolled back or delayed tariffs soon after.

2. April 2, 2025: Trump declared “Liberation Day” and unleashed tariff hikes globally. The next day, U.S. equities slumped sharply, undermining confidence in his trade strategy.

3. October 10, 2025: Following the end of a trade truce, the Nasdaq fell more than –3%. Within 24 hours, Trump softened his rhetoric, saying on October 11 he “never intended to harm China.”

These episodes reinforced Beijing’s belief that rattling Wall Street could force Trump into concessions. Xi Jinping has reportedly seized on Trump’s dependence on market performance, using it as a negotiating lever. As CFR analyst Rush Doshi put it: “Just as Trump backed down on rare earths, China believes he will back down again if pressured through the markets.”

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Implications for Investors

For investors, China’s strategy is more than just diplomatic theater. Each time trade tensions flare, Wall Street’s violent swings highlight the market’s fragility. The stock market serves not only as an economic barometer but also as a pressure point that foreign powers can exploit.

Thus, in upcoming negotiations, the decisive variable may not be tariff rates or official statements, but rather “how much punishment Wall Street can withstand.” Beijing knows this, and Trump cannot easily escape it.

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Part IV. The Crossroads of Uncertainty ― APEC and the Global Economy

As U.S.-China tensions sharpen, the administration continues its tough talk. Treasury Secretary Scott Bessent declared at CNBC’s Invest in America Forum in Washington, D.C. on October 15: “China cannot control global supply chains and manufacturing. The U.S., with its allies, is preparing collective action — even excessive, if necessary.”

Yet Bessent added a critical caveat: the U.S.-China summit scheduled for the APEC leaders’ meeting in Gyeongju, South Korea later this month will proceed as planned. This reveals a dual-track approach — maintaining maximum pressure while keeping the door to negotiations ajar.

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Signals from Global Bond Markets

The bond market offered its own clues. The benchmark 10-year U.S. Treasury yield held steady at 4.03%, while the more Fed-sensitive 2-year note edged up 2 basis points to 3.5%.

This divergence reflects investor psychology: longer-term yields suggest confidence that the economy can endure, while short-term yields reveal anxiety that the Fed may need to cut rates sooner if turmoil deepens. Investors are still weighing the trade conflict’s ripple effects alongside monetary policy expectations.

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📌 Conclusion ― Trump’s Weakness and the Global Crossroads

The U.S.-China trade conflict has long since evolved beyond tariff hikes and rollbacks. It now spans politics, finance, resources (rare earths), and even food commodities (soybeans, cooking oil). Its impact ripples across global supply chains.

China presses forward, convinced that Trump’s Achilles’ heel is the stock market.

The U.S. leans on bank earnings resilience and allied cooperation to steady investor confidence.

Yet Trump’s past pattern of retreating whenever markets tumble gives credibility to China’s calculation. In the end, the fate of this conflict may hinge less on rhetoric at negotiation tables and more on whether Wall Street can withstand the shocks.

For investors, short-term volatility is unavoidable. But the resilience shown by U.S. banks and segments of the tech sector remains a vital anchor for the market.

As of October 2025, the global economy stands at a crossroads where Trump’s Achilles’ heel collides with China’s strategy — and the world waits to see which side bends first.

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📌 Sources

Wall Street Journal, October 14, 2025

Reuters, October 14–15, 2025

CNBC, CFRA Research interview, October 15, 2025

U.S. Treasury Secretary remarks, CNBC Invest in America Forum, October 15, 2025