The recent decision by the U.S. and China to ease tariffs for 90 days is being hailed as a “reset,” but calling it that may be generous. While financial markets have responded with cautious optimism, this so-called truce appears more like a temporary ceasefire in a long and deeply entrenched economic war rather than a signal of lasting peace.

For nearly a decade, U.S/China trade tensions have evolved from simmering disputes over intellectual property and market access into a full-blown conflict with global consequences. The imposition of tariffs as high as 145% was a signal of just how deep the mistrust runs and how high the stakes are. The decision to reduce those tariffs, even temporarily, acknowledges a shared understanding: mutual economic destruction is not a sustainable strategy.

A Fragile Compromise

Both nations have blinked. Trump slashing tariffs by 115 percentage points, China reciprocating, albeit less dramatically. This is undoubtedly a short-term win for markets and supply chains that have been teetering under the weight of unpredictability. But investors, businesses, and governments would be wise not to mistake this for a resolution but rather progress towards a mutually agreeable solution.

Beneath the surface, the structural rifts remain unresolved. China’s centralized economy continues to double down on self-reliance and dominance over strategic materials and industries, from rare earths to AI. The U.S., on the other hand, is wrestling with its own vulnerability, having realized too late the extent of its dependence on Chinese imports, not just cheap goods, but crucial components for high-tech industries and national security.

Who Holds the Cards?

Despite its economic might, the U.S. is not holding a winning hand. While it boasts the world's largest economy and the most powerful currency, it is also far more exposed to internal pressure. Layoffs, inflation, and empty store shelves trigger public backlash quickly in democracies. In contrast, China's top-down governance allows for sustained pain if it serves a longer-term strategic vision.

Add to that China’s US$750 billion holding in U.S. Treasury bonds, and the leverage starts to tilt. While offloading that debt would hurt both countries, the threat alone keeps Washington’s economic advisers awake at night.

Where Does This Leave Canada?

Prime Minister Mark Carney has made strides in rekindling economic diplomacy in Washington, but the damage from years of trade disruption remains raw. With no resolution yet to the Canada/U.S. tariff standoff on steel, aluminum, and other goods, Canadian industries remain exposed.

The implications are not just bilateral, they are global. Canada, like many other nations caught in the economic crossfire, could suffer from increased prices, disrupted supply chains, and policy uncertainty. For dollar stores, manufacturers, and even large-scale retailers, the tariffs imposed in recent months were set to be economically suffocating.

A 90-day truce is better than escalation. But calling this agreement a “reset” could be misleading. The ideological divide between Trump’s nationalist, transactional approach and Xi’s authoritarian strategic vision makes a grand bargain unlikely. While markets celebrate, real progress will require more than political performance and temporary tariff rollbacks. It will demand structural compromise, long-term trust-building, and perhaps most elusive of all, mutual restraint.

Regardless of the outcome over the next 90 days, the portfolios have shown their resilience over the past 6-8 weeks and are well positioned for the uncertainty.

Until then, the world is watching, waiting, and preparing for next steps.