On Thursday morning, President Trump and General Secretary Xi Jinping held their first phone call since January. President Trump’s Truth Social post, and Beijing’s official readout, suggest a long and constructive call – including an invitation for Trump to visit China at a date to-be-determined.
There are still important questions about what the two sides agreed to, and about the outcome of planned talks to resolve the impasse over China’s rare earth restrictions and US export controls. Still, this activation of the Trump-Xi channel, particularly if followed by an in-person meeting, is important for managing tariff and especially non-tariff risks in coming months.
On rare earth restrictions and export controls: It is likely that the call and planned bilateral talks will de-escalate non-tariff tensions, avoiding disruption to US supply chains.
- President Trump’s post said that the two sides will meet shortly at the cabinet level to discuss rare earths, and specifically mentioned participation by Commerce Secretary Lutnick (in addition to Treasury Secretary Bessent and US Trade Representative Greer). Lutnick’s participation is important because the Commerce Department oversees U.S. export controls. Recent US controls targeting Chinese tech companies were a key reason for China’s reluctance to loosen rare earth exports.
- Indeed, China’s readout says that Xi told Trump that the United States should “revoke the negative measures it has taken against China.” This likely refers to export controls on EDA tools and aircraft parts and a warning to companies globally against using advanced chips from Huawei.
- It is not clear whether Trump agreed to address these measures specifically on the call, but we do see room for flexibility from the US side if China loosens rare earth restrictions.
- China’s readout implies that Trump also agreed not to revoke visas of Chinese students in the United States. This is a priority for Beijing mostly for the symbolism of defending the interests of its citizens.
A planned trip to China, and the uncertain fate of Trump’s fiscal bill, also lower risks around the US-China tariff truce:
- We have warned about the risks that Trump will re-escalate tariffs on Chinese imports in months ahead. But Trump in the past has been very keen on the pageantry of in-person meetings with Xi Jinping. The prospect of a trip to China may lead Trump to be more careful about provocative actions towards China, although this is not guaranteed. Lack of internal coordination between U.S. agencies on China policy will continue to be an issue.
- The increased uncertainty around Congressional passage of Trump’s fiscal bill may also be an important source of restraint on Trump’s trade policies. If the bill does not pass by Congress’ August recess, Trump will be more inclined to extend the August 12 trade truce with China rather than risk a political blowback that endangers the bill.
Caveats and watchpoints:
- The two sides have yet to tackle any of the underlying issues at the heart of trade tensions. A durable trade deal will be difficult to reach, especially given Trump’s affinity for tariffs, a backdrop of mutual distrust, and hawkish US attitudes towards China. It will also be important to see how Trump manages Taiwan, the most sensitive issue in the relationship for Xi.
- A key question in the weeks and months ahead is whether the US will make any assurances to Beijing regarding future U.S. export controls. AI is only intensifying US-China tech competition, and advances by DeepSeek (large language models) and Huawei (GPUs) among others are leading to calls within US national security circles to take even more aggressive measures to ensure US AI and semiconductor supremacy. Trump typically cares less about such concerns, but he will come under pressure from Congress not to give China a free pass.
- For the trade truce, it will be important to see whether China restarts purchases of US goods, and whether there are negotiations over securing a US buyer of TikTok.
Finally, investors should take note that this was just one round of battles over supply-side measures in what will be a major area of competition and conflict over the long term:
- China’s recent restrictions were part of an effort going back more than a year to build out a licensing regime for rare earths, which will continue to be a key tool of deterrence and coercion against the US but also Europe and Japan.
- In the last week, China’s tightening of rare earth export licenses starting on April 4 has impacted auto supply chains in Europe and Japan and led to increasingly panicked warnings from US industry. These developments will spur efforts to reduce reliance on China, with Reuters recently reporting that Trump may invoke the Defense Production Act to reduce restrictions on US mining of rare earths.
- However, breaking China’s chokehold will be extremely difficult, especially given the Trump administration’s reluctance to actively fund these efforts, and its uncertain commitment to coordinating with Brussels and Tokyo over these shared concerns.
