SUMMARY:
- The US and China made more progress than we were expecting in their trade talks this weekend, moving beyond a truce on rare earths to also secure notional commitments in areas such as Chinese purchases of soybeans and US pledges of fentanyl-related tariff relief. However, there are still unanswered questions about key details, particularly whether the US will offer concessions in the areas of export controls and fees on Chinese ships.
- The meeting between Trump and Xi on Thursday (October 30) will be critical for finalizing these agreements, providing more details, and exploring cooperation on geopolitical flashpoints such as Russia-Ukraine.
- A planned Trump visit to China in early 2026 will likely make additional progress on economic deliverables, but we are still skeptical about a true US-China “grand bargain” anytime soon.
- Our biggest concern is that a truce related to rare earths and export controls is vulnerable to breaking down. The logic of US-China strategic competition makes it highly likely that the two sides will see future flareups around chips, rare earths, and other supply chain chokepoints.
Setting the Table for Trump and Xi
On Sunday, the US and China concluded trade negotiations in Malaysia to prepare for the meeting between President Trump and General Secretary Xi Jinping on October 30. While we had expected a truce on rare earths, the progress on other trade issues seems a bit better than we had expected (see our preview report from Thursday HERE).
The talks this weekend were between Treasury Secretary Bessent, US Trade Representative Jamieson Greer, and Chinese Vice Premier He Lifeng. Note that statements by the US side were both more detailed and more ebullient than those from the Chinese side. This creates some risk of a mismatch in the characterization of the commitments and/or the expectations of the two sides. The Trump-Xi meeting on Thursday will be important for more concrete details.
Based mainly on comments from the US side, this is our sense of what the two sides have notionally agreed, and our main questions/watchpoints:
- Beijing will delay its latest rare earth control framework. The US side said that China has agreed to delay implementation of its most controversial October 9 rare earth measure (Document 61) for one year. Interestingly, Bessent implied that the US will not make any concessions of its own on export controls. We had expected that Beijing would at least insist on the US suspending or revising the “50% rule” announced on September 29, which was a key trigger for Beijing’s rare earths move. The terms of this rare earths/export control truce will be very important to monitor, as we expect it to be inherently fragile (discussed further below). Beyond delaying Document 61, Beijing presumably will also loosen the flow of rare earth exports, which tightened in September, but neither side has commented in detail on this.
- Extension of tariff truce. In addition to the US agreeing not to impose the 100% tariff that Trump threatened this month in response to China’s rare earth measures, the two sides will once again extend their truce on reciprocal tariffs, which was due to expire on November 10.
- Chinese purchases of US agricultural goods (soybeans and sorghum). It seems clear that China has committed to resuming purchases of US soybeans as well as sorghum, though the amounts and timelines are not yet public. Bessent implied that China’s commitments are not only for coming months but extend for coming years. We suspect that long-term commitments are not binding, and will be contingent on Chinese expectations (explicit or implicit) of US actions over this period. This sets up another area of potential disagreement/disappointment down the road, if China’s purchases fall below Trump’s expectations.
- A pledge to lower U.S. fentanyl-related tariffs. USTR Greer implied that the two sides reached a consensus where if China takes stronger actions to combat the production of fentanyl precursor drugs, the US will reduce at least a portion of the 20% tariffs on imports from China imposed due to fentanyl issue. The timeline for this quid-pro-quo was not specified.
- TikTok deal close to finalized: Bessent said that the two sides have ironed out the key details of a deal to transfer control of TikTok to a US consortium, with Trump and Xi to “consummate the deal” later this week.
- Trump visit to China in early Q1. Bessent said that Trump will likely visit China before Lunar New Year in 2026, which starts on February 17. That visit will be the occasion to finalize some of the commitments above and negotiate new deliverables, such as Chinese agreements to purchase Boeing planes and conceivably US semiconductors.
- Shipping fees: The Chinese readout says that the two sides discussed the fees on Chinese-built and Chinese-operated ships stemming from the US Section 301 investigation. Neither Bessent nor Greer discussed this topic, and we are very curious as to whether the US will make concessions in this area.
- Semiconductors. Neither side mentioned the issue of sales of US advanced semiconductors to China. They may be leaving this for further negotiations and perhaps Trump’s visit to China. We see some potential upside this year for Chinese purchases of chips from Nvidia and AMD, as China’s domestic chipmakers are still not able to produce viable substitutes, especially at scale.
The Trump-Xi meeting on Thursday will be important for confirming these agreements, as well as a discussion on geopolitical issues such as Russia-Ukraine, Iran, and North Korea. Trump has made clear in recent days that he seeks Xi’s cooperation in persuading Putin to negotiate a settlement with Ukraine. We very much doubt that Beijing will use economic/political pressure on Putin, setting up some risk of frustration by Trump in coming months.
So where does this leave the economic relationship? While this is not the “sweeping trade deal” described by Bloomberg News, it does show that both leaders are eager to stabilize the economic relationship. Since Trump’s inauguration, a key obstacle to a trade deal has been Beijing’s lack of clarity into what Trump wants and what he was willing to offer in return. Trump filled in those details over the last few weeks. While the deal looks somewhat one-sided in Washington’s favor, Beijing’s concessions are not painful. The deferral of the October 9 rare earth measures placates Trump and eases a broader global pushback (especially from Europe), and Beijing can always squeeze rare earth exports if it so chooses. Resuming US soybean purchases is also in the interest of Beijing, which will still ensure a balance of procurement from the US, Argentina, and Brazil.
Trump’s visit to China early next year opens up the possibility of additional economic deliverables (e.g., Chinese purchases of Boeing planes and AI chips). However, we expect a true US-China “grand bargain” will be very difficult in a climate of mutual distrust, weaponized interdependence, and a chaotic US policy process. As noted above, we are watching for more details in several key areas to understand the durability of these agreements, including whether Washington made concessions on export controls and shipping fees, and the full extent of China’s commitments on agricultural purchases. As detailed in last week’s special report (link again HERE), our biggest concern is the inherent fragility of a truce on rare earths and U.S. export controls. The logic of US-China strategic competition, especially over AI, is that it behooves the US to prevent China from overcoming a reliance on US/allied advanced semiconductor technology, and behooves Beijing from allowing the US to overcome its reliance on Chinese rare earth products. This tussle makes it highly likely that the two sides see future flareups around chips, rare earths, and other supply chain “chokepoints” controlled by each side.
Another latent risk for the relationship is the deals that Trump signed this weekend with other trade partners in Southeast Asia, a potentially powerful tool for limiting indirect US trade with China. During Trump’s visit to Malaysia this weekend, the US signed trade framework agreements with Thailand, Malaysia, and Cambodia. USTR’s Greer will seek to use these agreements to restrict trade with China that flows through these trade partners, though key details – such as how the deals define “rules or origin,” are still vague. The New York Times, quoting former US trade negotiator Wendy Cutler, accurately described this is a “sleeper issue” that will be important to watch in coming months, including for the extent to which it raises US-China tensions.
