Markets React as U.S.-China Tariffs Drop to 30% Amid Ongoing Tensions

After a tumultuous period for markets, the Trump administration raised tariffs on goods imported from China to 145%. However, news of a seemingly promising deal with the Chinese government has reduced tariff levels to 30% as of mid-May 2025. The S&P 500 responded positively, recovering from significant losses in April to achieve a positive year-to-date (YTD) performance.

Unresolved Trade Tensions Persist

Despite this reduction, the trade tensions between the United States and China remain unsettled. Currently, the U.S. tariffs on Chinese goods are lowered only for 90 days. Without additional negotiations, these tariffs could revert to higher levels later this year.

China’s Export Restrictions and Investor Outlook

China has relaxed some export restrictions, but it still maintains curbs on essential rare earth minerals, critical for defense and various industries. Thus, while tensions may have eased, the trade war continues to have implications for investors.

Investors optimistic about China’s prospects in ongoing negotiations may seek ways to leverage this situation. Access to the Chinese stock market can be challenging for U.S. investors. One efficient method is through exchange-traded funds (ETFs), which provide exposure to Chinese equities.

Exposure to Leading Chinese Large-Cap Stocks

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The KraneShares MSCI All China Index ETF (NYSEARCA: KALL) represents a generalized approach to investing in Chinese stocks. This fund tracks the MSCI China All Shares Index, which includes securities from exchanges in mainland China, Hong Kong, and the United States.

Investors gain broad access to approximately $9 trillion in market value of publicly traded companies headquartered in China. However, be aware that the MSCI index is weighted towards large-cap companies.

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In comparison to its notable competitor, the iShares MSCI China ETF (NASDAQ: MCHI), KALL offers a more favorable expense ratio of 0.49%, while MCHI stands at 0.59%. Investors should consider which fund aligns better with their objectives.

MCHI boasts a significantly larger asset base and higher trading volume, which may present liquidity advantages for investors who trade frequently. For buy-and-hold investors, KALL’s lower fees could provide a compelling benefit.

Investing in Non-State-Owned Chinese Enterprises

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For those looking for exposure to Chinese equities without government involvement, the WisdomTree China ex-State-Owned Enterprises Fund (NASDAQ: CXSE) is an alternative. This fund benchmarks to an index that selects non-state-owned Chinese companies using a modified float-adjusted market capitalization weighting.

In CXSE, a state-owned enterprise is defined as a company where the government owns 20% or more of outstanding shares. Investors often view non-state-owned companies as being more adaptable and having better growth prospects than their state-controlled counterparts.

Such companies are usually more responsive to market demand and show stronger earnings growth potential. Additionally, many are positioned in emerging industries like AI, green energy, and fintech, which may offer attractive growth opportunities. CXSE has a competitive expense ratio of 0.32%, making it an affordable choice among ETFs focusing on Chinese equities.

Broad Emerging Markets Access with a Focus on China

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The SPDR Portfolio Emerging Markets ETF (NYSEARCA: SPEM) extends beyond Chinese stocks but maintains a significant focus on emerging markets overall.

China comprises nearly one-third of the portfolio, including some of the largest individual holdings. Therefore, SPEM serves as a valuable choice for investors seeking broad exposure outside the U.S. market while emphasizing Chinese equities.

Adding to its appeal is an ultra-low expense ratio of just 0.07%, making SPEM a competitive option among contemporary ETFs.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.