SUMMARY
- The two sides have not released detailed outcomes on Trump’s China visit, but it does not appear to have led to breakthroughs on either trade or geopolitics.
- Beijing’s stance on Iran is constructive for eventual normalization of traffic through the Strait of Hormuz but will not shorten the duration of the conflict.
- While Trump does not appear to have signaled a change in overall US policy toward Taiwan, the fact that he discussed a pending US arms sale to Taiwan at length with Xi Jinping will arouse concerns in Taipei and the US Congress.
- Near-term trade outcomes appear to focus on China’s purchases of US agricultural goods; a more ambitious Board of Trade remains at an early stage of discussion and will be complicated by US tariff policy.
- As expected, there appears to be little change in the uneasy truce over US semiconductor export controls and China’s restrictions on rare earths.
- Xi Jinping’s visit to the US in late September provides an anchor for the two sides to manage tensions and make additional progress on trade commitments; we expect overall stability at least through US midterm elections in November.
While we still await more details from each side, Trump’s China visit has concluded with outcomes that appear largely in line with the limited expectations of our preview note (link HERE). Despite positive vibes, there were no breakthroughs on Iran, broader geopolitics, or the economic relationship.
Chinese leader Xi Jinping debuted a new formulation to describe the relationship – “constructive strategic stability.” The implication of this phrase is that the two sides are now true peers, without the ability to impose their agenda on the other (that is, for the US to try to “contain” China). This is largely how Trump now sees the relationship as well, having accepted that China’s dominance in supply chains, particularly rare earths, limits his coercive power.
Xi displayed confidence in China’s leverage by treating Trump with considerable pomp but giving him no major wins, even in relatively uncontentious areas such as purchase commitments. But it takes two to tango, and Trump also did not make major concessions such as on Taiwan or US export controls.
The positive outcome of this trip is that it should extend the overall stability in the relationship through the remainder of this year. Both leaders have domestic political reasons to avoid a return to trade and supply chain escalation: US midterm elections in November for Trump, and Xi’s preparations for a fourth term in power at the 21st Party Congress in late 2027.
As important, the two leaders may meet as many as three more times this year, with Xi to visit the US on September 24 at Trump’s invitation (the other potential meetings are when China hosts APEC in November, and the US hosts the G20 in December). Xi’s September visit provides an anchor for the two sides to manage tensions and explore further progress on trade. Indeed, the expectation of more meetings is one reason why immediate outcomes for this visit were so modest. Risks to the relationship in coming months tilt more to the upside of cooperation (albeit limited in scale and scope) than the downside of renewed escalation.
While more details on outcomes will likely trickle out through further statements by each side, below is where the visit seems to leave the state of play on key issues.
GEOPOLITICS
Iran: While China’s readout was vague, the White House says that Xi conveyed his opposition to militarization of the Strait of Hormuz and to Iran demanding a toll. Beijing’s position is constructive for the eventual normalization of traffic through the Strait, but is not a breakthrough that shortens the duration of the conflict (see the latest update on Iran from Jacob Kirkegaard, 22V’s head of geopolitical analysis, HERE).
Taiwan: Xi Jinping issued a strong but not unprecedented public warning to the US about carefully managing the Taiwan issue. The more important aspect is what they discussed in private. Trump told reporters today that the two leaders discussed a pending $14 billion US arms sale to Taiwan “in great detail.” US policy since 1982 (part of the “Six Assurances”) is that the US will not consult with China on arms sales to Taiwan. This is not the first time that Trump has been open to such a discussion, but the in-depth treatment will increase jitters in Taipei and among Taiwan supporters in US Congress. Indeed, Beijing characterized that discussion in positive terms. All parties will be closely watching whether Trump further postpones, or downsizes, the pending sale this summer. That said, Trump did not signal changes in overall US policy toward Taiwan, such as US “strategic ambiguity” toward coming to Taiwan’s defense in a conflict.
TRADE AND COMMERCIAL DEALS
Board of Trade: The two sides are discussing but have not yet formally announced a “Board of Trade,” which will be a framework to promote trade in “non-sensitive” goods that the US side estimates at $30 billion annually. US Trade Representative Jamieson Greer told Bloomberg that USTR will solicit public comment on the proposal, suggesting it remains at early stage. We do not expect a framework to manage trade to be easy to agree on or implement. China’s foreign minister, Wang Yi, told the media today the discussion of promoting bilateral trade is “under the framework of reciprocal tariff relief.” But US willingness to relax tariffs in advance of purchases is unclear (see next point). As US Treasury Secretary Bessent noted earlier this week in comments to CNBC, the US is more likely to relax tariffs on China’s low-end consumer-focused exports than on high-tech capital goods. A Board of Investment is also under discussion, but we expect promotion of Chinese investment in US industry to be even more complicated than trade cooperation.
Tariffs: Our preview note flagged the potential for disagreements this summer over US plans to increase tariffs on China and other major trading partners using Section 301 authorities, replacing tariffs struck down by US courts. Greer’s interview with Bloomberg suggested that this issue is not fully resolved, and that the two sides will “just have to try to manage” it once the US completes its investigation and announces its tariff plans. New US tariffs will not lead to another trade war but may complicate negotiations over China’s purchases on agriculture and through the Board of Trade.
Commodity Purchases:
- Greer said that the two sides are working toward an agreement in which China would make “double-digit billion-dollar purchases of US agriculture” on an annual basis over the next three years. The timing of an announcement is unclear, but Wang Yi implied more details will be available soon.
- There were no new agreements on soybeans, which are covered by the two leaders’ agreement last fall in South Korea. Greer said that Beijing will make additional soy purchases this fall to stay on track with its commitments.
- Trump said that Xi “expressed interest” in purchasing US crude.
Semiconductor/Tech Controls: As we expected, there was no major movement on US tech/semiconductor technology controls – Greer told Bloomberg that the issue did not come up between Trump and Xi. There is still the potential for the two sides to unstick the bureaucratic logjams that have been holding up licenses for Nvidia’s sales of H200 chips to China, but both governments are somewhat ambivalent on this issue, and the volume of such sales will be limited.
Rare Earths: Also as expected, there appears little change in the truce over China’s rare earths exports. Beijing appears set to maintain the current regime of licenses and approvals for US firms outside of the defense sector, which has been tight but tolerable enough to satisfy the US side while it continues efforts to reduce dependence on critical minerals from China.
Boeing Planes: Investors were underwhelmed with Trump’s announcement that Beijing will order 200 Boeing planes (no details on which types of aircraft). But of course, remember that Xi will visit again in September – this was not the only bite at the apple.
Near-term Watchpoints:
- Additional releases from each side as to outcomes from the visit and the private discussions between the two leaders
- Dynamics on Iran
- How Trump discusses the US stance on Taiwan, including planned arms sales
