If the US and China’s relationships were a boiling pot of water, you’d be running for the nearest fire extinguisher.

In recent years, tensions have escalated between the two — worsened by then-House Speaker Nancy Pelosi’s visit to Taiwan last year and the downing of a suspected Chinese spy balloon.

2023 also brought something new to fight about: Control over AI’s technology — leaving global companies caught in the crossfire of the trade conflict. And within the past two weeks…

• 🇺🇸 WSJ reported that the US was considering adding new restrictions on AI chip exports to China — potentially impacting companies like Nvidia, AMD and Micron.
• 🇨🇳 China announced export restrictions on two metals — germanium and gallium — used in electronics and semiconductors.
• 🇺🇸 And just yesterday, the WSJ reported that Biden is looking to restrict US cloud providers like Microsoft and Amazon from selling to Chinese companies.

The two stock markets diverge in 2023

Since the end of January, the MSCI China Index has fallen nearly 20% — while the S&P 500 is up 16% this year.

• Just three months before, China had fully lifted COVID restrictions — which sent the MSCI China Index up 60%.
• But the “revenge spending” failed to stay — as consumers held back from big purchases that would lift the economy.

With US-China tensions at boiling point and Chinese consumers reluctant to spend — investors are hoping for Beijing to step in with large stimulus packages to boost their economy.

Coming up: Tomorrow, US Treasury Secretary Janet Yellen heads to Beijing — with the goal of increasing communication, stabilizing the relationship and expanding collaboration between the two countries.