Why trade risks aren’t going away

What are the key takeaways from the recent U.S.-China summit?

U.S.-China

Last week, President Xi Jinping of China made his first state visit to Washington in a decade, joining U.S. President Donald Trump for a three-day summit. Though Trump claimed that the talks were “very productive,” few details or major announcements have emerged aside from an agreement to extend the trade truce between the two countries that had been set to expire in November.¹ This was all broadly in line with our expectations; U.S.-China trade tensions remain heightened, and we anticipate that this friction will persist for some time. The U.S. does not have a stronghold on trade with China the way it does with other countries. While there is bipartisan support for taking a harder line with China, which provides the U.S. administration with some political cover, President Trump himself would not want to be seen as negotiating from a position of weakness. This puts the administration in a tricky situation, as they need to find a way to manufacture a win in trade negotiations while also allowing China to feel like they got what they need. In other circumstances, bilateral relations might be a bit more amicable, but these factors make an agreement difficult to reach. For China’s part, our expectation is that they will play the long game. Unlike other countries, they have the leverage to dictate terms to an extent, and the lesson from the Strait of Hormuz stalemate is that holding your position—as Iran has—can buy you bargaining power. Remember: since President Trump started imposing steep tariffs, Chinese exports to the United States have slowed significantly, but China has nonetheless been able to grow their export business overall. In our view, the Trump administration cannot afford to see a major player like China continue to shift their export business away from the U.S. and toward other countries.

Bottom line: The U.S.-China summit featured no game-changing announcements, and due to the complexity of the trade situation between the two countries, we expect heightened tensions to continue for some time.

Oil

With a resolution to the Strait of Hormuz situation remaining elusive and the Russian invasion of Ukraine now into its fifth year, reports have emerged of potential diesel fuel shortages.² Diesel is an important input for industries including farming and mining, and it also powers many of the trucks and ships that transport goods around the globe. We expect diesel prices to continue to rise in the near term, which could provide some momentum for electric vehicle (EV) sales. Transportation costs—which have already risen quite a bit—can also be expected to increase, which will add more pressure on inflation. It is possible that, in some instances, we could see transportation costs exceed the cost of the goods themselves, which is obviously unsustainable. Ultimately, we do think that this is a shorter-term roadblock rather than a longer-term one, and we expect the impact on company profits to be marginal. However, it will take a combination of developments to completely put the problem to rest: a resolution to the U.S.-Iran situation on the one hand, and alternative solutions—alternative fuels, alternative transport methods, and alternative trade routes—on the other. At US$60-70 per barrel of oil, there’s little need for companies to bother with alternatives. At US$100 per barrel, however, they have no choice but to start getting creative

Bottom line: Through we expect any diesel shortage to be short-lived, it will add further inflationary pressure and incentivize companies to make alternative arrangements.

AI

In recent weeks, calls for a slowdown in the development of artificial intelligence (AI) technology, most notably from Anthropic CEO Dario Amodei,³ have sparked much public debate. While some have speculated that the controversy could be a major headwind for AI companies, others seem convinced that the issue could actually help the AI theme by building speculation over the technology’s immense power. Our view is that the outlook for AI—and, in particular, Anthropic and OpenAI’s upcoming initial public offerings (IPOs)—has not changed dramatically. It is possible that the companies’ valuations could come down from the absolute top of their range to somewhere merely near the top, but there is still a great deal of demand for the offerings. The real test will come post-IPO, when the market tests its thesis; only when investors’ initial lock-up periods have expired will we learn whether the stocks will move up from their starting points or drop off. More broadly speaking, we are seeing risks in the AI space increase, especially with respect to pushback against data centre construction, questions about regulation, and the increasing cost of memory. All of those risks are playing into the rotation we’re seeing within Technology, with some investors looking for diversification away from the biggest and most expensive names.

Bottom line: While there are several headwinds that could affect the AI theme, we do not expect calls to slow down AI’s development to greatly impact the upcoming Anthropic and OpenAI IPOs.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled The broadening summer rally confronts a higher-rate reality.

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Originally Posted September 28, 2026 – Why trade risks aren’t going away