SUMMARY
- The US and China appear to have reached an understanding in which the US will increase tariffs on some goods this summer while lowering tariffs on consumer items; our baseline assumption is an 8-percentage point increase in the effective U.S. tariff rate on imports from China.
- Despite the establishment of a Board of Investment, we do not have high expectations for potential Chinese direct investment in the United States, including in areas such as autos; both sides are ambivalent, and it will take more time to build the necessary trust and political conditions.
- Reference to indium, a critical mineral used in optical devices, is a reminder of the US reliance on China for inputs critical to the AI/data center buildout; given growing concerns about the bottlenecks in data center construction, the US-China truce on supply chain measures will be important to monitor.
Since our initial analysis of Trump’s China visit, published Friday (link HERE), more details have trickled out regarding the agreements and private discussions between the two sides. The White House has released a fact sheet (link HERE) and Treasury Secretary Bessent and US Trade Representative Greer have provided color in media interviews. China’s Ministry of Commerce released its own statements on Saturday and Wednesday.
These additional inputs do not change our overall take on the visit, which is that it served to extend a window of stability this year that advantages both leaders and their domestic agendas. But we can add a few more nuances on some important economic issues: tariffs, direct investment, and tech/supply chain tensions.
TRADE: Low-Ambition Agreement Still Limits Tariff Escalation
The two sides reached a number of agreements on specific trade issues, including Chinese commitments to purchase US agricultural products ($17 billion per year, on top of existing soybean commitments) and Boeing planes (200 aircraft), and mutual commitments to address agricultural market access concerns. They also announced two new mechanisms: a Board of Trade and a Board of Investment.
The Board of Trade is a forum for the two sides to promote trade in “non-sensitive areas,” which the US side has estimated at $30 billion in goods for each side. This amounts to around 10% of US imports from China and 30% of China’s imports from the US, respectively (using US customs data). It is not clear whether that $30 billion is inclusive of China’s commitments last week to purchase US agricultural goods, which seem to roughly total that amount.
We expect this to be an unambitious initiative, whose value is as much to maintain dialogue on trade disputes as to actively promote trade. The two sides are at an early stage of deciding which items they would seek to promote, which is likely to be contentious given their differing priorities (e.g., does China want to buy what the US wants to sell?) and disagreements on tariffs.
The two sides appear to have reached a basic if uneasy understanding around US tariff increases this summer:
- The US plans to use Section 301 and other legal authorities to regain the tariff levels that were in place prior to the US Supreme Court decision in January that struck down IEEPA tariffs. IEEPA tariffs on China were at an effective rate of 20 percent, but a rate of 10 percent is still temporarily in place under Section 122 tariffs that expire in late July. The US plans to announce the results of pending Section 301 investigations on overcapacity and forced labor by late July, so that it can move quickly after Section 122 authorities expire.
- After months of opposition, MOFCOM signaled this week that it will begrudgingly accept these moves, provided that US tariff levels do not exceed what the two sides agreed in Kuala Lumpur in October 2025. Beijing also expects – and Bessent has confirmed – that there will be some mutual tariff relief on the goods subject to the Board of Trade.
- Thus, on a net basis, a reasonable baseline assumption is that in the late summer, the US will raise the effective rate on imports from China by 8 percentage points from current levels, with modest tariff relief (mainly on imports of consumer items) on Board of Trade goods offsetting a small portion of the overall 10 percentage point increase.
- The risks are skewed toward a smaller tariff increase, as Beijing will press for additional tariff relief in exchange for purchasing US goods, and as the White House deals with elevated inflation ahead of US midterms.
- Beijing will also be closely monitoring how the US sets its tariff rate on imports from other countries. A Section 301 tariff rate for China that matches other US partners would be a major win for Beijing.
Some uncertainty will hang over the trade relationship this fall, when the trade and supply chain truce is set to expire. The trade and supply chain truce that Trump and Xi agreed at their meeting in South Korea expires November 10, 2026 – one week after US midterm elections. Beijing will press the US to extend the truce before then, angling for an agreement that covers Trump’s remaining time in office. US officials will aim for a shorter-duration agreement and likely drag out discussions for as long as possible. These dynamics will be the backdrop for Xi’s visit to the US on September 24. Ultimately, because renewed trade tensions would be costly for both sides, we see a low probability that the truce lapses.
In the meantime, the center of China-related trade disputes is likely to shift from the United States to Europe, given EU plans to impose tougher restrictions on Chinese exports and investment.
CHINESE INVESTMENT: Once Bitten, Twice Shy
The Board of Investment is the most novel agreement from the trip, since the last decade has generally seen US officials and politicians treat Chinese direct investment as a Trojan horse for Beijing’s espionage and industrial policies, with a number of high-profile deals blocked or thwarted on national security grounds. Trump, despite having played a role in fanning some of these political flames in his first term, has nonetheless expressed interest in Chinese investment, including in the auto sector.
Comments by Bessent and Greer imply that the Board of Investment will not seek to actively promote specific investment projects, but instead to help Chinese investors identify areas that will not trigger US national security concerns. We expect both sides to remain ambivalent about cooperation in this area. U.S. labor organizations and national security hawks remain strongly opposed to Chinese investment in the auto sector. As importantly, Chinese investors will be wary of making expensive, multi-year commitments when the politics could shift again with the next US presidential election.
TECH/CRITICAL MINERALS: Data Center Supply Chains in Focus
There were no major changes in the truce over key supply chains agreed last November, which calls for China to permit exports of critical minerals to US firms outside the defense sector, and the US to refrain from major new controls on semiconductor and other tech exports to China. But the US fact sheet does claim that Beijing agreed to address specific US concerns about shipments of yttrium, scandium, neodymium, and indium (China’s own statements are silent in terms of specific commitments).
The mention of indium is notable, as it highlights the intersection of critical minerals and supply chains critical to the global data center buildout. Indium is a critical component in the production of photonics, such as the indium phosphide wafers produced by Coherent for use in data centers. This also explains why the White House invited Coherent to join the CEO delegation on Trump’s visit. According to this Reuters report (link HERE), it was to help Coherent secure licenses from MOFCOM to import indium. Per Reuters, China’s shipments of indium to the US have dropped by 77% since Beijing imposed export controls in February 2025.
The AI buildout is increasingly a central part of the backdrop of US-China supply chain dynamics. The two AI ecosystems are somewhat intertwined, with China dominant in (among other items) critical minerals, electrical equipment, and printed circuit boards, and the US still important for China in advanced semiconductor technology. Each side is seeking to reduce reliance on the other but must weigh restrictions against the potential risks to their own tech firms and national AI initiatives. We recently featured some of the Chinese exporters benefiting from the global data center buildout HERE. As the US AI data center rollout increasingly runs up against issues of scarcity, we expect concerns around dependence on China to be a growing focus for investors and policymakers.
