President Trump and General Secretary Xi Jinping will meet at 11am Thursday local time in South Korea, 10pm ET Wednesday evening. Trump continues to surprise us with how quickly he has shifted into deal-making mode for this meeting, as we had expected the meeting to be something of a placeholder for a more ambitious visit to China in early Q1 (sometime before February 17).
Below is an update on our expectations for announcements/outcomes:
- Reduction of fentanyl tariffs. Trump signaled in media comments that he expects to lower the 20% tariffs he imposed on Chinese imports to compel cooperation on fentanyl. We expect a commitment by Trump to lower tariffs by 10 percentage points. The effective date of the reduction could be soon, but may wait until Trump visits China early next year to show more evidence of stepped-up cooperation.
- Caveats/Questions: The pending Supreme Court case against the IEEPA tariffs could remove this tariff authority, which may be one reason Trump is moving sooner than we expected.
- Chinese purchases of US agriculture. US officials said over the weekend that China has committed to resume purchases of US soybeans and sorghum. The scale of soybean purchase commitments is unclear, but we assume that the baseline for US share in China’s market will be lower than the peak under the Phase One deal in 2021 (37% share). A reasonable baseline seems like a 25-30% share, with further upside likely dependent on a broader deal (perhaps when Trump visits China early next year).
- Caveats/Questions: The experience of the Phase One deal was not positive for either side. It will be interesting to see whether this lowers the ambition of the purchase commitments in this deal.
- Moving closer to resuming Nvidia chip exports. Trump also said that he plans to discuss Nvidia’s Blackwell chips with Xi, implying that he will encourage China to buy – and will allow Nvidia to sell – a chip designed for the China market that is more advanced than the H20 chips that Beijing has disdained. We have been expecting some upside for Nvidia chips in China, given that China’s domestic industry is capacity constrained.
- Caveats/Questions: The geopolitics of tech competition makes this complicated for both sides. Beijing will not want to signal that it is flinging the doors wide open for Nvidia, given growing confidence in domestic chipmakers, so its messaging around allowing purchases of these chips – and perhaps the scale – may be subdued. For Trump, this would be a win for Nvidia and AMD, but it will incite considerable controversy in national security and AI circles. Allowing China access to Blackwell chips will improve the ability of Chinese AI companies to keep pace with US frontier models. There is a risk that Trump could reverse this decision down the road if tensions rise again.
- Truce on rare earths and export controls. We expect China to suspend Document 61 (imposed on October 9) for one year as the key formal change in its rare earths regime, and more informally to agree to accelerate export approvals to US firms. The US will suspend or amend the “50% rule” announced on September 29.
- Caveats/Questions: Details of what each side is offering here will be important, as previous agreements quickly broke down. Over the medium term, our special report last week (link HERE) noted that a truce will be fragile given the logic of US-China strategic competition and their respective efforts to have the upper hand in critical supply chain chokepoints.
- Media reporting also suggests that Trump will agree to lower port fees on Chinese ships, recently imposed after a Section 301 investigation. The Chinese readout of trade talks over the weekend had earlier implied such a reduction was coming.
- Finalization of a TikTok deal, though this might also wait until Trump’s visit to China.
- Continued extension of the earlier US-China truce on tariffs, which was due for renewal on Nov. 10.
- Potential upside for Chinese purchases of other US exports, such as Boeing planes. This is a good window for Beijing to build further momentum by dangling additional commitments.
We will have more to say about the US-China outlook following the meeting. Some of our questions:
- What will be the political reaction in the US, given that Trump’s commitments weaken or even reverse some of his stated goals with China? As the Council on Foreign Relations’ Brad Setser notes on Twitter (link HERE), a 10 ppts reduction in tariffs on Chinese imports would put Trump’s second term increases on China tariffs at 20% — the same as Southeast Asian countries and only 5 ppts higher than Japan, South Korea, and the European Union.
- What will be left to announce when Trump visits China early next year? A higher level of ambition for economic cooperation will increasingly come into tension with the broader dynamics of the US-China geopolitical rivalry. Beijing’s proposals for its next Five-Year Plan double-down on objectives and industrial policies – dominating advanced manufacturing, boosting self-reliance in critical technologies – that are of core concern to US policymakers (see our initial take HERE).
- To what extent is Trump banking on Xi’s cooperation with Russia? We doubt Xi will do much to pressure Putin, leading to a risk of disappointment.
For China economic policy, the promise of tariff relief and stability on the US-China front further lowers the likelihood of additional near-term stimulus. The end-October Politburo meeting usually focuses on economic policies in Q4. But it is not clear that Beijing will hold a Politburo meeting this month, or that it will focus on the economy.
