The outcomes of the Trump-Xi meeting matched what the two sides have telegraphed over the last couple of days – a major climbdown by Trump:
- Rare earths/export controls. China is suspending its Oct 9 rare earth measures, in return for the US suspending the September 29 “50% rule.” Both suspensions are for one year.
- Fentanyl tariffs. US will lower 10% of the 20% fentanyl tariffs. The exact timing is unclear but presumably soon. China will lower its retaliatory tariffs. The move brings Trump’s second term tariff increases on imports from China (now at 20%) to only 5% higher than those imposed on US allies (Japan, South Korea, EU) and the same level as ASEAN countries.
- Chinese ag/energy purchases. China will purchase US soybeans, sorghum, other ag goods (amounts unclear). The two sides will discuss China purchasing US oil and gas, for which there is considerable room.
- US will suspend its recently imposed port fees on Chinese ships for one year.
- Further steps towards finalizing TikTok sale.
- Trump said he plans to visit China in April 2026, not early Q1 as had been under discussion.
- The two sides did not discuss Nvidia chips, but this area will be interesting to watch (see discussion further below).
Key Takeaways:
Trump moved farther and faster in his concessions to China than we initially thought likely, driven by domestic political concerns over the plight of US farmers and by a lack of effective response to China’s rare earths deterrent.
This outcome is a major win for Xi Jinping, in economic terms but especially in propaganda terms at home and abroad. Xi was able to force Trump to back down on tariffs, export controls, and port fees, all without making painful concessions. Tariff relief and a reduction in tensions further reduces the already low likelihood that Beijing increases stimulus in the near-term.
Today’s agreement will bring at least short-term stability to relationship, lasting through Trump’s visit to China in April and perhaps through US midterms. The two sides have not addressed core tensions in the relationship, but Trump does not seem to have the inclination or the leverage to tackle them for now. Xi will be happy to make further commitments to purchase US goods, including energy as well as Boeing planes, in order to preserve stability in the relationship while he pursues his priorities of further technological self-reliance and dominance in advanced manufacturing. US Congress will criticize Trump’s coziness with Xi, but the GOP is unlikely to challenge Trump on policy.
It will be hard to build on this momentum beyond incremental gains. Trump’s announcement that he will visit China in April, not Q1, reflects a reduced sense of urgency after today’s outcomes. As Trump himself said today, “A lot of decisions were made too, there wasn’t too much left out there.” Follow up talks, and the runup to April, will likely bring more of the same – Chinese purchase commitments in ag, energy, and some manufactured goods – but it is not clear if there is enough momentum to seek a comprehensive trade deal. Trump has now addressed his immediate political liability with US farmers, and does not have much additional leverage to offer Beijing beyond moves that will be highly controversial, such as US policy towards Taiwan.
The two big risks to this period of stability are: (1) tech/supply chain competition; and (2) geopolitical tensions and accidents:
- On tech, our special report last week (link HERE) noted that the logic of US-China strategic competition will put pressure on the rare earths/export control truce. Both sides are seeking to reduce their dependence on the other, and extend the other party’s dependence. This tussle is particularly intense in rare earths and semiconductors. Potential triggers for tension include the US Section 301 investigation in reliance on Chinese mature semiconductors. A separate Section 232 investigation of semiconductor imports can increase tariff for ~20% of Chinese exports to US (expected by the end of the year). A more powerful “DeepSeek” moment, in which Chinese chipmakers or AI model firms challenge US technological leadership, could also increase pressure on Trump to tighten export controls and blunt China’s capabilities.
- Geopolitical flashpoints – Russia/Ukraine, Taiwan, South China Sea, North Korea, Iran – present more risk than opportunity in the relationship.
The issue of Nvidia selling advanced GPUs to China is complicated for both sides. Trump said that he and Xi did not discuss sales of Nvidia chips to China, as Trump had floated with the media in the runup to the meeting. His potential willingness to allow Nvidia to sell the B30A – a chip designed for China’s market, and substantially more advanced than the H20 chip that Beijing has disdained – aroused a sharp reaction on Wednesday in US policy circles, especially among China hawks. Trump’s former Deputy National Security Advisor, Matt Pottinger, wrote that “Trump would be unilaterally deindustrializing America.” Those opposed to the move argue that the B30A will allow Chinese tech companies to make more progress in developing advanced AI models, reduce the overall US lead in total compute power over China, and free up manufacturing capacity that Chinese chipmakers (Huawei and SMIC) can use to produce their own rival chips. It is not clear that these concerns will be enough to sway Trump, who has become increasingly close to Nvidia’s Jensen Huang. It will be important to watch the US political debate, and comments from officials close to Trump such as AI advisor David Sacks.
Beijing needs more advanced computing power while domestic firms build manufacturing capacity and prowess. At the same time, China’s leadership does not want to fling open the doors to Nvidia and reduce the urgency of domestic firms to work together to develop a self-reliance domestic AI stack. If the US offer is there, we expect Beijing to permit domestic firms to use the B30A but to keep the pressure up to develop domestic alternatives.
